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Transactions for buyer and seller Shore Co. sold merchandise to Blue Star Co. on account, $112,000, terms FOB shipping point, 2/10, n/30. The cost of the goods sold is $67,200. Shore paid freight of $1,800. Journalize the entries for Shore and Blue Star for the sale, purchase, and payment of amount due.

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Financial And Managerial Accounting

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

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 5, Problem 5BE
Textbook Problem
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Transactions for buyer and seller

Shore Co. sold merchandise to Blue Star Co. on account, $112,000, terms FOB shipping point, 2/10, n/30. The cost of the goods sold is $67,200. Shore paid freight of $1,800. Journalize the entries for Shore and Blue Star for the sale, purchase, and payment of amount due.

To determine

Record the sales transactions in the books of Company S.

Explanation of Solution

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

Sales is an activity of selling the merchandise inventory of a business.

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

DateAccounts and ExplanationDebit ($)Credit ($)
 Accounts Receivable 109,760 (1) 
 To Sales 109,760
 (To record the sale of inventory on account after discount)  

Table (1)

Working note (1):

Calculate the amount of accounts receivable.

Sales = $112,000

Discount Percentage = 2%

Amount of accounts receivable} = SalesDiscount=Sales(Sales×2%)= $112,000 – ($112,000×2%)= $112,000$2,240=$109,760

  • • Accounts Receivable is an asset and it is increased by $109,760. Therefore, debit account receivable with $109,760.
  • • Sales is revenue and it increases the value of equity by $109,760. Therefore, credit sales with $109,760.

Record the journal entry for cost of goods sold.

DateAccounts and ExplanationDebit ($)Credit ($)
 Cost of Merchandise Sold67,200 
 Merchandise Inventory 67,200
 (To record the cost of merchandise sold)  

Table (2)

  • • Cost of merchandise sold is an expense account and it decreases the value of equity by $67,200. Therefore, debit cost of merchandise sold account with $67,200.
  • • Merchandise Inventory is an asset and it is decreased by $67,200. Therefore, credit inventory account with $67,200.

Record the journal entry for the freight paid by Company S on behalf of Company B.

DateAccounts and ExplanationDebit ($)Credit ($)
 Accounts Receivable 1,800 
 To Cash 1,800
 (To record the payment of freight charges paid)  

Table (3)

  • • Accounts Receivable is an asset and it is increased by $1,800. Therefore, debit account receivable with $1,800.
  • • Cash is an asset and it is decreased by $1,800. Therefore, credit cash account with $1,800.

Record the journal entry for the balance amount received.

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Cash 111,560 (2) 
           Accounts Receivable  111,560
 (To record cash received with freight charges)   

Table (4)

Working Note (2):

Calculate the amount of cash received.

Amount of accounts receivable for sales = $109,760

Amount of accounts receivable for freight charges = $1,800

Amount of cash received} = (Amount of accounts receivable for sales+Amount of accounts receivable for freight charges)= $109,760+$1,800=$111,560

  • • Cash is an asset and it is increased by $111,560

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Chapter 5 Solutions

Financial And Managerial Accounting
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