# Appendix PR 5-78 Purchase-related transactions using periodic inventory system Selected transactions for Niles Co. during March of the current year are listed in Problem 5-18. Instructions Journalize the entries to record the transactions of Niles Co. for March using the periodic inventory system.

### Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169

Chapter
Section

### Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169
Chapter 5, Problem 5.7BPR
Textbook Problem
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## AppendixPR 5-78 Purchase-related transactions using periodic inventory systemSelected transactions for Niles Co. during March of the current year are listed in Problem 5-18.InstructionsJournalize the entries to record the transactions of Niles Co. for March using the periodic inventory system.

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Purchases is an activity of acquiring the merchandise inventory of a business.

To Record: The purchase transactions under periodic inventory system.

### Explanation of Solution

• Purchases account is an expense and it is decreased the equity value by $43,250. Therefore, debit purchase account with$43,250.
• Freight-In is an expense and it is increased by $650. Therefore, debit freight-in account with$650.
• Accounts payable is a liability and it is increased by $43,900. Therefore, credit accounts payable account with$43,900.

Record the journal entry in the books of Company C.

 Journal Entry Date Account Title and Explanation Post Ref. Debit ($) Credit ($) March 5 Purchases 19,175 Accounts Payable 19,175 (To record purchases of inventory on account)

Table (2)

Explanation:

• Purchases account is an expense and it is decreased the equity value by $19,175. Therefore, debit purchase account with$19,175.
• Accounts payable is a liability and it is increased by $19,175. Therefore, credit accounts payable account with$19,175.

Record the journal entry for the due amount paid.

 Journal Entry Date Account Title and Explanation Post Ref. Debit ($) Credit ($) March 10 Accounts Payable 43,900 (1) Purchase Discount 865 (2) Cash 43,035 (3) (To record paying cash on purchases after discounts and returns)

Table (3)

Working Notes:

Calculate accounts payable amount.

Purchases = $43,250 Freight paid = 650 Accounts payable = Purchase + Freight paid=$43,250+$650=$43,900 (1)

Calculate purchase discount.

Accounts payable = $43,250 Discount percentage = 2% Purchase discount =$43,250 × 2100 = $865 (2) Calculate cash paid. Accounts payable =$43,250

Purchase discount = $865 (2) Freight paid =$650

Cash paid = (Accounts payable, net – Purchase discount)+Freightcharges($43,250 –$865)+$650=$43,035 (3)

Explanation:

• Accounts payable is a liability and it is decreased by $43,900. Therefore, debit accounts payable account with$43,900.
• Purchase discount is an income and it is increased the equity value by $865. Therefore, credit purchase discount account with$865.
• Cash is an asset and it is decreased by $43,035. Therefore, credit cash account with$43,035.

Record the journal entry for purchases of inventory.

 Journal Entry Date Account Title and Explanation Post Ref. Debit ($) Credit ($) March 13 Purchases 15,550 Accounts Payable 15,550 (To record purchases of inventory on account)

Table (4)

Explanation:

• Purchases account is an expense and it is decreased the equity value by $15,550. Therefore, debit purchase account with$15,550.
• Accounts payable is a liability and it is increased by $15,550. Therefore, credit accounts payable account with$15,550.

Record the journal entry for purchase returned.

 Journal Entry Date Account Title and Explanation Post Ref. Debit ($) Credit ($) March 14 Accounts Payable 3,750 Purchases Returns and Allowances 3,750 (To record the purchases return)

Table (5)

Explanation:

• Accounts payable is a liability and it is decreased by $3,750. Therefore, debit accounts payable account with$3,750.
• Purchases returns and allowances account is an expense and it is increased the equity value by $3,750. Therefore, credit purchases returns and allowances account with$3,750.

Record the journal entry for purchases of inventory.

 Journal Entry Date Account Title and Explanation Post Ref. Debit ($) Credit ($) March 18 Purchases 13,560 Accounts Payable 13,560 (To record purchases of inventory on account)

Table (6)

Explanation:

• Purchases account is an expense and it is decreased the equity value by $13,560. Therefore, debit purchase account with$13,560.
• Accounts payable is a liability and it is increased by $13,560. Therefore, credit accounts payable account with$13,560.

Record the journal entry for freight paid.

 Date Account Title and Explanation Post Ref. Debit ($) Credit ($) March 18 Freight-In 140 Cash 140 (To record the payment of freight charges)

Table (7)

Explanation:

• Freight-In is an expense and it is increased by \$140

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