To determine Gross Method: Under this method, all the purchases are recorded in the books of account without taking into account the trade discount, returns and allowances. T he purchases are to be recorded at full cost. Journal Entry : It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization‘s financial health. Rules of Journal Entry: To increase the balance of account one needs to debit assets, expenses, losses and credit all the liabilities, revenues and gains including capital. To decrease the balance of account credit all assets, expenses, losses and debit all liabilities, revenues and gains including capital. Perpetual Inventory System: The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system. To prepare: Journal entries in the books of Company A. Explanation Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account. Cash is an asset account Since, cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account. Working note: Calculation of purchase cost, Purchase Cost = Number of Units × Unit Cost per Unit = 2 , 000 × $ 10 = $ 20 , 000 Sold 1,500 units of inventory for $14 on account: Date Account Title and Explanation Post ref Debit ($) Credit ($) May 5 Account Receivable 21,000 Sales 21,000 (To record sales made on account) Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited. Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited. Working note: Calculation of amount of sales, Sales = Number of Units Sold × Sales Price Per Unit = 1 , 500 × $ 14 = $ 21 , 000 Date Account Title and Explanation Post ref Debit ($) Credit ($) May 5 Cost of goods sold 15,000 Merchandise inventory 15,000 (To record cost of goods sold) Cost of goods sold account is an expense account. Since expense is to be increased, expense is to increased. Therefore, Cost of goods sold account is debited. Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited. Working note: Calculation of cost of goods sold, Cost of Goods Sold = Number of Units Sold × Cost Price Per Unit = 1 , 500 × $ 10 = $ 15 , 000 Company M returns 125 units because they were unfit as per its needs: Date Account Title and Explanation Post ref Debit ($) Credit ($) May 7 Sales return and allowances 1,750 Account receivable 1,750 (To record sales return) Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited. Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited. Working note: Calculation of sales return and allowances, Sales Return And Allowances = Number of Units Returned × Sale Price Per Unit = 125 × 14 = $ 1 , 750 Date Account Title and Explanation Post ref Debit ($) Credit ($) May 7 Cost of goods sold 1,250 Merchandise inventory , 1,250 (To record cost of goods sold) Cost of goods sold account is an expense account

Loose-Leaf for Financial and Managerial Accounting

7th Edition

ISBN: 9781260004861

Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher: McGraw-Hill Education

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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…

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Chapter 4, Problem 4E

To determine

Gross Method:

Under this method, all the purchases are recorded in the books of account without taking into account the trade discount, returns and allowances. T
he purchases are to be recorded at full cost.

Journal Entry: It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization‘s financial health.

Rules of Journal Entry: To increase the balance of account one needs to debit assets, expenses, losses and credit all the liabilities, revenues and gains including capital. To decrease the balance of account credit all assets, expenses, losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System: The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Expert Solution & Answer

Chapter 4 Solutions

Loose-Leaf for Financial and Managerial Accounting

Ch. 4 - Prob. 1MCQ Ch. 4 - A company purchased $4,500 0f merchandise on May 1...Ch. 4 - Prob. 3MCQ Ch. 4 - Prob. 4MCQ Ch. 4 - Prob. 5MCQ Ch. 4 - Prob. 1DQ Ch. 4 - Prob. 2DQ Ch. 4 - Prob. 3DQ Ch. 4 - Prob. 4DQ Ch. 4 - How does a company that uses a perpetual inventory...

Ch. 4 - Prob. 6DQ Ch. 4 - Prob. 7DQ Ch. 4 - Prob. 8DQ Ch. 4 - Prob. 9DQ Ch. 4 - Prob. 10DQ Ch. 4 - Prob. 11DQ Ch. 4 - Prob. 12DQ Ch. 4 - Prob. 13DQ Ch. 4 - Prob. 14DQ Ch. 4 - Prob. 15DQ Ch. 4 - Prob. 1QS Ch. 4 - Prob. 2QS Ch. 4 - Merchandise accounts and computations C2 Use the...Ch. 4 - Computing net invoice amounts P1 Compute the...Ch. 4 - Recording purchases, returns, and discounts taken...Ch. 4 - Prob. 6QS Ch. 4 - Prob. 7QS Ch. 4 - Prob. 8QS Ch. 4 - Prob. 9QS Ch. 4 - Prob. 10QS Ch. 4 - Prob. 11QS Ch. 4 - Prob. 12QS Ch. 4 - Prob. 13QS Ch. 4 - Prob. 14QS Ch. 4 - Prob. 15QS Ch. 4 - Prob. 16QS Ch. 4 - Prob. 17QS Ch. 4 - Prob. 18QS Ch. 4 - Prob. 19QS Ch. 4 - Prob. 20QS Ch. 4 - Prob. 21QS Ch. 4 - Prob. 22QS Ch. 4 - Prob. 23QS Ch. 4 - Prob. 2E Ch. 4 - Exercise 4-3 Recording purchase, purchase returns...Ch. 4 - Exercise 4-4 Recording sales, sales returns and...Ch. 4 - Prob. 5E Ch. 4 - Prob. 6E Ch. 4 - Prob. 7E Ch. 4 - Prob. 8E Ch. 4 - Prob. 9E Ch. 4 - Prob. 10E Ch. 4 - Prob. 11E Ch. 4 - Prob. 12E Ch. 4 - Prob. 13E Ch. 4 - Exercise 4-14 Computing and analysinig acid-test...Ch. 4 - Prob. 15E Ch. 4 - Prob. 16E Ch. 4 - Prob. 17E Ch. 4 - Exercise 4-18 preparing an income statement under...Ch. 4 - Prob. 19E Ch. 4 - Prob. 20E Ch. 4 - Prob. 21E Ch. 4 - Prob. 22E Ch. 4 - Prob. 23E Ch. 4 - Prob. 1PSA Ch. 4 - Prob. 2PSA Ch. 4 - Prob. 3PSA Ch. 4 - Prob. 4PSA Ch. 4 - Prob. 5PSA Ch. 4 - Prob. 6PSA Ch. 4 - Prob. 1PSB Ch. 4 - Prob. 2PSB Ch. 4 - Prob. 3PSB Ch. 4 - Prob. 4PSB Ch. 4 - Prob. 5PSB Ch. 4 - Problem 4-6BB preparing a work sheet for a...Ch. 4 - Prob. 4SP Ch. 4 - Prob. 1GLP Ch. 4 - The General Ledger tool in connect several of the...Ch. 4 - Prob. 3GLP Ch. 4 - Prob. 1BTN Ch. 4 - Prob. 2BTN Ch. 4 - Prob. 3BTN Ch. 4 - COMMUNICATING IN PRACTICE C2 P3 P5 BTN 4-4 You are...Ch. 4 - Prob. 5BTN Ch. 4 - TEAMWORK IN ACTION C1 C2 BTN 4-6 Official Brands’s...Ch. 4 - Prob. 7BTN Ch. 4 - Prob. 8BTN Ch. 4 - Prob. 9BTN

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