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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

PURCHASES AND CASH PAYMENTS TRANSACTIONS Debbie Mueller owns a small retail business called Debbie’s Doll House. The cash account has a balance of $20,000 on July 1. The following transactions occurred during July:

July 1    Issued Check No. 314 for July rent, $1,400.

1    Purchased merchandise on account from Topper’s Toys, Invoice No. 211, $2,500, terms 2/10, n/30.

3    Purchased merchandise on account from Jones & Company, Invoice No. 812, $2,800, terms 1/10, n/30.

5    Returned merchandise purchased from Topper’s Toys receiving a credit memo on the amount owed, $400.

8    Purchased merchandise on account from Downtown Merchants, Invoice No. 159, $1,600, terms 2/10, n/30.

11    Issued Check No. 315 to Topper’s Toys for merchandise purchased on account, less return of July 5 and less 2% discount.

13    Issued Check No. 316 to Jones & Company for merchandise purchased on account, less 1% discount.

15    Returned merchandise purchased from Downtown Merchants receiving a credit memo on the amount owed, $600.

18    Issued Check No. 317 to Downtown Merchants for merchandise purchased on account, less return of July 15 and less 2% discount.

25    Purchased merchandise on account from Columbia Products, Invoice No. 468, $3,200, terms n/30.

26    Purchased merchandise on account from Topper’s Toys, Invoice No. 395, $1,430, terms 2/10, n/30.

29    Purchased merchandise on account from Jones & Company, Invoice No. 853, $2,970, terms 1/10, n/30.

Required

  1. 1. Enter the transactions starting with page 16 of a general journal.
  2. 2. Post from the journal to the general ledger and accounts payable ledger accounts. Use general ledger account numbers as shown in the chapter.

1.

To determine

Journalize the purchase and cash payment transactions in the books of DD House.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the purchase and cash payment transactions in the books of DD House.

Transaction on July 1:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
July1Rent Expense5211,400 
   Cash101 1,400
  (Record payment of rent expense)   

Table (1)

Description:

  • Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on July 1:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
July1Purchases5012,500 
   Accounts Payable, T Toys202/✓ 2,500
  (Record purchases made on account)   

Table (2)

Description:

  • Purchases is an expense account which records the cost of inventory purchased. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • Accounts Payable, T Toys is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on July 3:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
July3Purchases5012,800 
   Accounts Payable, Company J202/✓ 2,800
  (Record purchases made on account)   

Table (3)

Description:

  • Purchases is an expense account which records the cost of inventory purchased. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • Accounts Payable, Company J is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on July 5:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
July5Accounts Payable, T Toys202/✓400 
   Purchases Returns and Allowances501.1 400
  (Record merchandise returned)   

Table (4)

Description:

  • Accounts Payable, T Toys is a liability account. Since inventory is returned, amount to be paid has decreased, liability account is decreased, and a decrease in liability is debited.
  • Purchases Returns and Allowances is a contra-cost account, and contra-cost accounts increase the equity value, and an increase in equity is credited.

Transaction on July 8:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
July8Purchases5011,600 
   Accounts Payable, D Merchants202/✓ 1,600
  (Record purchases made on account)   

Table (5)

Description:

  • Purchases is an expense account which records the cost of inventory purchased. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • Accounts Payable, D Merchants is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on July 11:

Page: 16
DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
July11Accounts Payable, T Toys202/✓2,100 
   Cash101 2,058
   Purchases Discounts501.2 42
  (Record cash paid for purchases on account)   

Table (6)

Description:

  • Accounts Payable, T Toys is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
  • Purchases Discounts is a contra-purchases or contra-costs account, and contra-purchases accounts increase the equity value, and an increase in equity is credited.

Working Note 1:

Compute purchases discount value.

Purchases discounts = {(Purchases–Purchase returns and allowances) × Discount percentage}($2,500–$400)×2%= $42

Working Note 2:

Compute amount of cash paid (Refer to Working Note 1 for purchase discount value).

Cash  paid = (Purchases on account value–Purchases returns and allowances–Purchases discount value)= $2,500–$400–$42= $2,058

Transaction on July 13:

Page: 16
DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
July13Accounts Payable, Company J202/✓2,800 
   Cash101 2,772
   Purchases Discounts501

2.

To determine

Post the given transactions into the accounts of the general ledger, and the suppliers account in accounts payable ledger.

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