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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

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

PURCHASES TRANSACTIONS—GROS-PRICE AND NET-PRICE METHODS Romero’s Heating and Cooling had the following transactions during April:

Apr. 2    Purchased merchandise on account from Alanon Valve for $1,000, terms 2/10, n/30.

5    Purchased merchandise on account from Leon’s Garage for $1,400, terms 1/10, n/30.

11    Paid the amount due to Alanon Valve for the purchase on April 2.

25    Paid the amount due to Leon’s Garage for the purchase on April 5.

  1. 1. Prepare general journal entries for these transactions using the gross-price method.
  2. 2. Prepare general journal entries for these transactions using the net-price method.

1.

To determine

Journalize the purchase transactions under gross-price method in the books of Company HC.

Explanation

Gross method: The method of recording the inventory purchases without deducting any purchase discounts is referred to as gross method.

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 transactions under gross-price method in the books of Company HC.

Transaction on April 2:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
April2Purchases 1,000 
     Accounts Payable, AV  1,000
  (Record purchase of merchandise on account)   

Table (1)

Description:

  • Purchase 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, AV is a liability account. Since amount owed increased, liability increased, and an increase in liability is credited.

Transaction on April 5:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
April5Purchases 1,400 
     Accounts Payable, LG  1,400
  (Record purchase of merchandise on account)   

Table (2)

Description:

  • Purchase 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, LG is a liability account. Since amount owed increased, liability increased, and an increase in liability is credited.

Transaction on April 11:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
April11Accounts Payable, AV 1,000 
   Cash  980
   Purchases Discounts  20
  (Record cash paid for purchases on account)   

Table (3)

Description:

  • Accounts Payable, AV is a liability account...

2.

To determine

Journalize the purchase transactions under net-price method in the books of Company HC.

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