Determine the LIFO cost
Toys "R" Us purchases inventory in crates of merchandise; each unit of inventory is a crate of toys. The fiscal year of Toys "R" Us ends each January 31. Assume you are dealing with a single Toys "R" Us store in San Antonio, Texas, and that the store experienced the following: The San Antonio store began fiscal year 2005 with an inventory of 20,000 units that cost a total of $1,200,000. During the year, the store purchased merchandise on account as follows:
April (30,000 units @ cost of $65) .................. $ 1,950,000
August (50,000 units @ cost of $65) ................. 3,250,000
November (90,000 units @ cost of $70) ............ 6,300,000
Total purchases ................................................ $11,500,000
Cash payments on account totalled $11,390,000. During fiscal year 2005, the store sold 180,000 units of merchandise for $16,400,000, of which $5,300,000 was for cash and the balance was on account. Toys "R" Us uses the LIFO method for inventories. Operating expenses for the year were $4,000,000. The store paid 80% in cash and accrued the rest. The store accrued income tax at the rate of 40%.
Required
1. Make summary journal entries to record the store's transactions for the year ended January 31, 2005. Toys "R" Us uses a perpetual inventory system.
2. Determine the LIFO cost of the store's ending inventory at January 31, 2005. Use a T-account.
3. Prepare the stores income statement for the year ended January 31, 2005. Show totals for the gross profit, income before tax, and net income.