Question

Now that operations for outdoor clinics and TEAM events are running smoothly, Suzie thinks of another area for business expansion, She notices that a few clinic participants wear multiuse (MU) watches. Beyond the normal timekeeping features of most watches, MU watches are able to report temperature, altitude, and barometric pressure. MU watches are waterproof, so molsture from kayaking, rain, fishing, or even diving up to 100 feet won't damage them. Suzie decides to have MU watches available for sale at the start of each clinic. The following transactions relate to purchases and sales of watches during the second half of 2022 . All watches are sold for $720 each. Ju1. 17 Turehased 83 watches for $12,450 (\$150 per watch) on aceount. Jul. 31 5old 82 watches for $59,040 cash. Rag. 12 Purchased 62 watehes for $9,920 (\$160 per watch) eash. Aug, 22 Sold 52 watches for $37,440 on account. Sep. 19 Paid for watehes purchased on Jaly 17 . Sep. 27 Heceive cash of $22,464 for watches Hold on acceunt on Augant 22 . Oct. 27 Purchased 135 Watches for $22,950($170 per wateh ) eaab. Nov, 20 Sold 112 vatches for $80,640 eash. Dec. 4 Purchased 122 watehes for $21,960 \{\$180 per wateh) on account. Dec. 8 Sold 62 Watchen for $44,640 on aceount. Late in December, the next generation of multiuse (MU il) watches is released. In addition to all of the features of the MU watch, the MU II watches are equipped with a global positioning system (GPS) and have the ability to download and play songs and videos off the Internet. The demand for the original MU watches is greatly reduced. As of December 31 , the estimated net realizable value of MU watches is only $100 per watch.

Answer 1

The question involves the management of inventory for MU watches in Suzie's business, the recordkeeping of purchase and sales transactions, and the adjustment of inventory value due to market decline after a new product release.

Step-by-step explanation:

The question relates to a scenario in which Suzie is managing the inventory, purchasing, and selling of Multiuse (MU) watches for her business. Over the second half of a year, she carries out several transactions involving MU watches, including purchasing them at various costs, selling them, and coping with changes in the market value due to a new generation of watches being released. It involves concepts such as inventory management, accounts payable, cash flow, and the impact of new product releases on existing inventory value. As of December 31st, Suzie must account for the reduced net realizable value of the MU watches, which could affect her financial statements and inventory valuation.

Net realizable value (NRV) is an important term here, which refers to the estimated selling price of inventory in the ordinary course of business, minus any estimated costs of completion, disposal, and transportation. NRV must be considered when the market value of the inventory has declined, as is the case with the original MU watches after the release of MU II watches. In Suzie's case, she would need to write down the inventory to the lower NRV, which will decrease her income for the period and decrease the asset value on the balance sheet.

Answer 2

The business transactions outlined include purchases and sales of MU watches, changes in inventory valuation due to a new product release, and the necessary accounting adjustments for the decreased net realizable value.

Step-by-step explanation:

The question provided outlines a sequence of transactions regarding the purchase and sales of multiuse (MU) watches within a business. It includes information on the dates of purchases and sales, the quantities of watches involved, their cost price and selling price, and the introduction of a next-generation watch (MU II) that affects the demand and value of the original MU watches.

Inventory valuation becomes crucial here due to the decline in the net realizable value of the original MU watches after the release of the MU II watches. This situation requires an adjustment in accounting records to reflect the lower net realizable value per watch, aligning with lower of cost or market (LCM) rules in inventory accounting. The financial implication is that the business might record a write-down, reflecting the loss in value of the existing inventory.

Moreover, profit calculation is affected based on the number of watches sold versus the purchasing and selling price. The accounting activity throughout the period will impact the business's financial statements, including the income statement and balance sheet.