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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

Michelle French owns and operates Books and More, a retail book store. Selected account balances on June 1 are as follows:

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 The following purchases and cash payments transactions took place during the month of June:

June 1 Purchased books on account from Irving Publishing Company, $2,100. Invoice No. 101, terms 2/10, n/30, FOB destination.

2 Issued Cheek No. 300 to Northeastern Publishing Co. for goods purchased on May 23, terms 2/10, n/30, $1,960 (the $2,000 invoice amount less the 2% discount).

3 Purchased books on account from Broadway Publishing, Inc., $2,880. Invoice No. 711, less a 20% trade discount, and invoice terms of 3/10, n/30, FOB shipping point.

3 Issued Cheek No. 301 to Mayday Shipping for delivery from Broadway Publishing, Inc., $250.

4 Issued Cheek No. 302 for June rent, $625.

8 Purchased books on account from Northeastern Publishing Co., $5,825. Invoice No. 268, terms 2/com, n/60, FOB destination.

10 Received a credit memo from Irving Publishing Company, $550. Books had been returned because the covers were on upside down.

13 Issued Check No. 304 to Broadway Publishing, Inc., for the purchase made on June 3. (Check No. 303 was voided because an error was made in preparing it.)

28 Made the following purchases:

images

30 Issued Cheek No. 305 to Taylor County Utility Co. for June utilities, $325.

30 French withdrew cash for personal use, $4,500. Issued Check No. 306.

30 Issued Cheek No. 307 to Irving Publishing Company for purchase made on June 1 less returns made on June 10.

30 Issued Check No. 308 to Northeastern Publishing Co. for purchase made on June 8.

30 Issued Check No. 309 for books purchased at an auction, $1,328.

REQUIRED

  1. 1. Enter the transactions in a general journal (start with page 16).
  2. 2. Post from the journal to the general ledger accounts and the accounts payable ledger. Use general ledger account numbers as indicated in the chapter.
  3. 3. Prepare a schedule of accounts payable.
  4. 4. If merchandise inventory was $35,523 on January 1 and $42,100 as of June 30, prepare the cost of goods sold section of the income statement for the six months ended June 30,20--.

1.

To determine

Journalize the purchases and cash payment transactions for the month of June.

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 purchases and cash payment transactions for the month of June.

Transaction on June 1:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June1Purchases5012,100 
   Accounts Payable, Company IP202/✓ 2,100
  (Record purchases made on account)   

Table (1)

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 IP is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on June 2:

Page: 16
DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
June2Accounts Payable, Corporation NP202/✓2,000 
   Cash101 1,960
   Purchases Discounts501.2 40
  (Record cash paid for purchases on account)   

Table (2)

Description:

  • ■ Accounts Payable, Corporation NP 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}($2,000–$0)×2%= $40

Working Note 2:

Compute amount of cash paid (Refer to Working Note 2 for purchase discount value).

Cash  paid = (Purchases on account value–Purchases returns and allowances–Purchases discount value)= $2,000–$0–$40= $1,960

Transaction on June 3:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June3Purchases5012,304 
   Accounts Payable, Incorporation BP202/✓ 2,304
  (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, Incorporation BP is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 3:

Compute the purchase invoice value.

Purchase invoice value = List price–Trade discount= $2,880–($2,880×20%)=$2,880$576= $2,304

Transaction on June 3:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June3Freight-In502250 
   Cash101 250
  (Record payment of freight charges)   

Table (4)

Description:

  • ■ Freight-In 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 June 4:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June4Rent Expense521625 
   Cash101 625
  (Record payment of rent expense)   

Table (5)

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 June 8:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June8Purchases5015,825 
   Accounts Payable, Corporation NP202/✓ 5,825
  (Record purchases made on account)   

Table (6)

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, Corporation NP is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on June 10:

Page: 16
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June10Accounts Payable, Company IP202/✓550 
   Purchases Returns and Allowances501.1 550
  (Record merchandise returned)   

Table (7)

Description:

  • ■ Accounts Payable, Company IP 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 June 13:

Page: 16
DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
June13Accounts Payable, Incorporation BP202/✓2,304.00 
   Cash101 2,234.88
   Purchases Discounts501.2 69.12
  (Record cash paid for purchases on account)   

Table (8)

Description:

  • ■ Accounts Payable, Incorporation BP 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 4:

Compute purchases discount value (Refer to Working Note 3 for value of purchases).

Purchases discounts = {(Purchases–Purchase returns and allowances) × Discount percentage}($2,304–$0)×3%= $69

2.

To determine

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

3.

To determine

Prepare accounts payable schedule for Company BM as at June 30.

4.

To determine

Prepare the cost of goods sold section of income statement for Company BM.

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