Question 3 Tobermory Merchandising had the following transactions during May: May 5           Purchased $2,700 of merchandise on account, terms 3/15 n/60, FOB shipping point.              9       Paid transportation cost on the May 5 purchase, $250.            10       Returned $400 of defective merchandise purchased on May 5.            15       Paid for the May 5 purchase, less the return and the discount. Required: Assuming the perpetual inventory system is used, prepare the journal entries to record the above transactions.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.