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A Sales and purchase-related transactions for seller and buyer Obj. 2 using perpetual inventory system The following selected transactions were completed during August between Summit Company and Beartooth Co.: Aug. 1. Summit Company sold merchandise on account to Beartooth Co., $48,000, terms FOB destination, 2/15, n/eom. The cost of the goods sold was $28,800. 2. Summit Company paid freight of $1,150 for delivery of merchandise sold to Beartooth Co. on August 1. 5. Summit Company sold merchandise on account to Beartooth Co., $66,000, terms FOB shipping point, n/eom. The cost of the goods sold was $40,000. 9. Beartooth Co. paid freight of $2,300 on August 5 purchase from Summit Company. 15. Summit Company sold merchandise on account to Beartooth Co., $58,700, terms FOB shipping point, n/45. Summit paid freight of $1,675, which was added to the invoice. The cost of the goods sold was $35,000. 16. Beartooth Co. paid Summit Company for purchase of August 1. Aug. 20. Summit Company paid Beartooth Co. a cash refund of $1,000 for defective merchandise purchased on August 1. Beartooth Co. kept the merchandise. 31. Beartooth Co. paid Summit Company on account for purchase of August 5. 31. Summit Company issued Beartooth Co. a credit memo for merchandise with an invoice amount of $4,000 that was returned from the August 15 sale. The cost of the merchandise returned was $2,500. Instructions Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 5, Problem 4PA
Textbook Problem
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A Sales and purchase-related transactions for seller and buyer Obj. 2 using perpetual inventory system

The following selected transactions were completed during August between Summit Company and Beartooth Co.:

Aug. 1. Summit Company sold merchandise on account to Beartooth Co., $48,000, terms FOB destination, 2/15, n/eom. The cost of the goods sold was $28,800.

2. Summit Company paid freight of $1,150 for delivery of merchandise sold to Beartooth Co. on August 1.

5. Summit Company sold merchandise on account to Beartooth Co., $66,000, terms FOB shipping point, n/eom. The cost of the goods sold was $40,000.

9. Beartooth Co. paid freight of $2,300 on August 5 purchase from Summit Company.

15. Summit Company sold merchandise on account to Beartooth Co., $58,700, terms FOB shipping point, n/45. Summit paid freight of $1,675, which was added to the invoice. The cost of the goods sold was $35,000.

16. Beartooth Co. paid Summit Company for purchase of August 1.

Aug. 20. Summit Company paid Beartooth Co. a cash refund of $1,000 for defective merchandise purchased on August 1. Beartooth Co. kept the merchandise.

31. Beartooth Co. paid Summit Company on account for purchase of August 5.

31. Summit Company issued Beartooth Co. a credit memo for merchandise with an invoice amount of $4,000 that was returned from the August 15 sale. The cost of the merchandise returned was $2,500.

Instructions

Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.

(1)

To determine

Prepare journal entries to record the transactions of Company S during the month of August using perpetual inventory system.

Explanation of Solution

Perpetual Inventory System refers to the Merchandise Inventory system that maintains the detailed records of every Merchandise Inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-merchandise inventory at any point of time.

Record the journal entry for the sale of inventory on account on August 1.

DateAccounts and ExplanationDebit ($)Credit ($)
August 1Accounts Receivable47,040 
        Sales Revenue 47,040
 (To record the sale of inventory on account)  

Table (1)

  • Accounts receivable is an asset and it is increased by $47,040. Therefore, debit accounts receivable with $47,040.
  • Sales revenue is revenue and it increases the value of equity by $47,040. Therefore, credit sales revenue with $47,040.

Working Note:

Calculate the amount of accounts receivable.

Sales = $48,000

Discount percentage = 2%

Amount of accounts receivable = (SalesDiscount)=Sales(Sales×1%)= $48,000 – ($48,000×2%)=$47,040

Record the journal entry for cost of goods sold on August 1.

DateAccounts and ExplanationDebit ($)Credit ($)
August 1Cost of Goods Sold28,800 
 Inventory 28,800
 (To record the cost of goods sold)  

Table (2)

  • Cost of goods sold is an expense account and it decreases the value of equity by $28,800. Therefore, debit cost of goods sold account with $28,800.
  • Inventory is an asset and it is decreased by $28,800. Therefore, credit inventory account with $28,800.

Record the journal entry for delivery expense on August 2.

DateAccounts and ExplanationDebit ($)Credit ($)
August 2Delivery expense1,150 
 Cash 1,150
 (To record the payment of delivery expenses)  

Table (3)

  • Delivery expense is an expense account and it decreases the value of equity by $1,150. Therefore, debit delivery expense account with $1,150.
  • Cash is an asset and it is decreased by $1,150. Therefore, credit cash account with $1,150.

Record the journal entry for the sale of inventory on account on August 5.

DateAccounts and ExplanationDebit ($)Credit ($)
August 5Accounts Receivable-Company B66,000 
        Sales Revenue 66,000
 (To record the sale of inventory on account)  

Table (4)

  • Accounts receivable is an asset and it is increased by $66,000. Therefore, debit accounts receivable with $66,000.
  • Sales revenue is revenue and it increases the value of equity by $66,000. Therefore, credit sales revenue with $66,000.

Record the journal entry for cost of goods sold on August 5.

DateAccounts and ExplanationDebit ($)Credit ($)
August 5Cost of goods sold40,000 
 Inventory 40,000
 (To record the cost of goods sold)  

Table (5)

  • Cost of goods sold is an expense account and it decreases the value of equity by $40,000. Therefore, debit cost of goods sold account with $40,000.
  • Inventory is an asset and it is decreased by $40,000. Therefore, credit inventory account with $40,000.

Record the journal entry for the sale of inventory on account on August 15.

DateAccounts and ExplanationDebit ($)Credit ($)
August 15Accounts Receivable-Company B58,700 
        Sales Revenue 58,700
 (To record the sale of inventory on account)  

Table (6)

  • Accounts receivable is an asset and it is increased by $58,700

(2)

To determine

Prepare journal entries to record the transactions of Company B during the month of August using perpetual inventory system.

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Chapter 5 Solutions

Financial And Managerial Accounting
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