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BCO114 ACCOUNTING

BCO114 ACCOUNTING

BCO114 ACCOUNTING I Task brief & rubrics

Task: Final Assignment (40% of the Final grade)

You must answer all the questions in the proposed business case.

This task assesses the following learning outcomes:

• Critically understand the differences between the methods of valuation of the inventory

• Knowing how to properly elaborate an income statement and determine the ending inventory balance.

LAUNCH: WEEK 10 / DELIVERY: MAY 10th, 2020, 23:59HRS ON MOODLE

Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer.

BUSINESS CASE (100 points)

Jim has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds and pistachios.

During its first month of activity, the company has made the following transactions:

February 2: Purchase of Pistachios: 2.500Kg@10$/Kg $ 25.000

Purchase of Almonds: 4.000Kg @ 5$/Kg $ 20.000

Purchas of Peanuts: 6.000Kg @ 3$/ Kg $ 18.000

February 3: Purchase of Pistachios: 1.500Kg@12$/Kg $18.000

Purchase of Almonds: 2.000Kg @ 6$/Kg $ 12.000

Purchas of Peanuts: 2.000Kg @ 4$/ Kg $ 18.000

mailto:2.500Kg@10$/Kg
mailto:1.500Kg@12$/Kg
February 6: Sold to several clients:

Pistachios: 2.000Kg@ 20$/Kg $40.000

Almonds: 2.500Kg @ 11$/Kg $ 27.500

Peanuts: 3.000Kg @ 7$/ Kg $ 21.000

February 6: Sold to Fruits Lovers Inc.:

Pistachios: 500Kg @20$/Kg. $ 10.000

Almonds: 1.000Kg @ 11$/Kg $ 11.000

Peanuts: 1.500Kg @ 8$/ Kg $ 12.000

February 12 Purchase of Pistachios: 1.500Kg@14$/Kg $ 21.000

Purchase of almonds: 2.000Kg @ 8$/Kg $ 16.000

February 13: Sale of peanuts to Peanuts Lovers Inc.: 3.500Kg @8$/kg $ 28.000

February 14: Purchase of Peanuts 6.000 Kg @4$/Kg $24.000

February 19: Sold to several clients:

Pistachios: 1.00Kg@ 21$/Kg. $ 21.000

Almonds: 1.500Kg @ 13$/Kg $ 19.500

Peanuts: 3.000Kg @ 9$/ Kg $ 27.000

February 25: Purchased from various suppliers:

Pistachios: 1.00Kg@13$/Kg. $ 13.000

mailto:1.500Kg@14$/Kg
mailto:1.00Kg@13$/Kg
Almonds: 1.000Kg @ 9$/Kg $ 9.000

Peanuts: 1.000Kg @ 4$/ Kg $ 4.000

Besides these transactions, the company has had the following expenses:

Salaries: $3500

Electricity bill: $300

Renting of equipment: &800

Rent of warehouse and office: $1.500

Miscellaneous: $1.200

Jim’s accountant recommended that he should use the average cost method in order to determine the cost of the inventory sold but he is not sur e about the

consequences it nay have on his financial situation

Relying on your accounting knowledge, Jim asks you the following questions:

1: Why in your opinion did Jim’s accountant recommend the average cost method and what difference is there whit the three other methods? Explain the main

characteristics of each method of valuation of the inventory and the consequences they may have on the valuation of the inventory and determination of the net

income in case of price fluctuation. (20 points)

2: Prepare an Income statement of the company at the end of February using as method of valuation of the inventory the average cost method, FIFO and LIFO for

each one of the products sold by Jim, and calculate the balance of the inventory at the end of the month. Explain the calculations. (40 points: 30 points for the

calculation and 10 for explanations)

3: In order to compare with the records made by his accountant, Jim asks you to prepare the different journal entries for the purchases and sales mentioned above

for each one of the 3 different methods used above. (15 points)

4: Jim’s accountant insisted that he should use a perpetual inventory system instead of a periodic inventory system and the average cost method for valuating the

inventory. Do you agree with this advice (justify your answer)? Would the balance of the inventory at the end of the month be the same? And the net income? (15

points)

5: Jim would like to know a forecast of the number of days to sell the inventory based on the results of the month of February. Explain your calculation and the

steps followed. (10 points: 5 for calculation and 5 for explanation)

6. Jim expects that the prices of the merchandises will dramatically decrease in the next future as a result of the Covid 19 crisis. Which method of valuation of the

inventory would you thus recommend to Jim? Explain your answer. (5 points)

Rubrics

Descriptor

9-10 The student demonstrates an excellent understanding of the concepts.

8-8.9 The student demonstrates a good understanding of the concepts.

7-7.9 The student demonstrates a fair understanding of the concepts.

6-6.9 The student demonstrates some, but insufficient understanding of the concepts.

3-5.9 The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.

1-2.9 The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.

0 The student leaves the question blank or cheats.

95% of the grade based on the approach, calculations and comments, and 5% based on the presentation and look & field of the spreadsheet.

Points are at the end of each question.

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