Thompson Plumbing Inc. is a wholesaler of plumbing accessories. Thompson Plumbing began operations in September of the current year and engaged in the following transactions during September and October of this year. Thompson Plumbing uses a perpetual inventory system.
Sept.03 Purchased $240,000 of plumbing accessories, terms n/30.
Sept.15 Sold $180,000 of plumbing accessories, terms n/60. The cost of the accessories sold is $120,000
Sept.28 Purchased $360,000 of plumbing accessories, terms n/45
Oct.03 Settled the $240,000 purchase of September 3 t of the accessories sold is $300,000.
Oct.15 Sold $450,000 of plumbing accessories, terms n/60.
Oct.27 Purchased $540,000 of plumbing accessories, terms n/30. The cost of the accessories sold is $300,000
Required
a. Compute the gross profit (loss) on Thompson Plumbing's transactions during September and October.
b. Compute the gross profit (loss) on Thompson Plumbing's transactions during September and October if a cash-basis accounting system was used
c. Assume that the fair value of Thompson Plumbing's inventory at October 31 is $900,000. A potential lender asks Thompson Plumbing to prepare a fair-value-based balance sheet.
Prepare the journal entry to reflect inventory at fair value. Comment on howa wholesaler might determine fair value for inventory items. (Hint: Increase the Inventory account by the difference between fair value and book value with the offset to an account titled Revaluation of Inventory to Market Value)