Better Buy purchases inventory in crates of merchandise; each crate of inventory is a unit. The…

 
   

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Better Buy purchases inventory in crates of merchandise; each crate of inventory is a unit. The fiscal year of Better Buy ends each January 31. Assume you are dealing with a single Better Buy store in San Diego, California. The San Diego store began 2012 with an inventory of 20,000 units that cost a total of $1,000,000. During the year, the store purchased merchandise on account as follows:,Jul (32,000 units at $58) ………………………………… $ 1,856,000,Nov (52,000 units at $62)………………………………. 3,224,000,Dec (62,000 units at $68)……………………………….. 4,216,000,Total purchases ……………………………………………… $ 9,296,000,Cash payments on account totaled $8,896,000. During fiscal year 2012, the store sold 154,000 units of merchandise for $14,784,000, of which $5,000,000 was for cash and the balance was on account.,Better Buy uses the average-cost method for inventories. Operating expenses for the year were $2,750,000. Better Buy paid 70% in cash and accrued the rest as accrued liabilities. The store accrued income tax at the rate of 40%.,Requirements,1. Make summary journal entries to record the store’s transactions for the year ended January 31, 2012. Better Buy uses a perpetual inventory system.,2. Prepare a T-account to show the activity in the Inventory account.,3. Prepare the store’s income statement for the year ended January 31, 2012. Show totals for gross profit, income before tax, and net income.