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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Purchase-related transactions using perpetual inventory system

The following selected transactions were completed by Niles Co. during March of the current year:

Mar. 1. Purchased merchandise from Haas Co., $43,250, terms FOB shipping point, 2/10, n/eom. Prepaid freight of $650 was added to the invoice.
5. Purchased merchandise from Whitman Co., $19,175, terms FOB destination, n/30.
10. Paid Haas Co. for invoice of March 1.
13. Purchased merchandise from Jost Co., $15,550, terms FOB destination, 2/10, n/30.
14. Issued debit memo to Jost Co. for $3,750 of merchandise returned from purchase on March 13.
18. Purchased merchandise from Fairhurst Company, $13,560, terms FOB shipping point, n/com.
18. Paid freight of $140 on March 18 purchase from Fairhurst Company.
19. Purchased merchandise from Bickle Co., $6,500, terms FOB destination, 2/10, n/30.
23. Paid Jost Co. for invoice of March 13 less debit memo of March 14.
29. Paid Bickle Co. for invoice of March 19.
31. Paid Fairhurst Company for invoice of March 18.
31. Paid Whitman Co. for invoice of March 5.

Instructions

Journalize the entries to record the transactions of Niles Co. for March.

To determine

Journal entry: Journal is the book of original entry whereby all the financial transactions are recorded in chronological order. Under this method each transaction has two sides, debit side and credit side. Total amount of debit side must be equal to the total amount of credit side. In addition, it is the primary books of accounts for any entity to record the daily transactions and processed further till the presentation of the financial statements.

The following are the rules of debit and credit:

  1. 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and stockholders’ equity accounts are debited.
  2. 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.

To Determine:  Preparejournal entries to record the transactions of Company N during the month of March using perpetual inventory system.

Explanation

Working Note:

Calculate the amount of accounts payable.

Purchases = $43,250

Discount percentage = 2%

Freight charges = $650

Amount of accounts payable} = [(PurchasesDiscount)+Freight]=[Purchases(Purchases×2%)+Freight][$43,250 – ($43,250×2%)+$650]= $43,250$865+$650=$43,035 (1)

Explanation:

  • Merchandise Inventory is an asset and it is increased by $43,035. Therefore, debit Merchandise Inventory account with $43,035.
  • Accounts payable is a liability and it is increased by $43,035. Therefore, credit accounts payable account with $43,035.

Record the journal entry of Company N.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

March 5 Merchandise Inventory   19,175  
  Accounts payable     19,175
  (To record purchase on account)      

Table (2)

Explanation:

  • Merchandise Inventory is an asset and it is increased by $19,175. Therefore, debit Merchandise Inventory 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 of Company N.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

March 10 Accounts payable   43,035  
        Cash     43,035
  (To record the payment against accounts payable)      

Table (3)

Explanation:

  • Accounts payable is a liability and it is decreased by $43,035. Therefore, debit accounts payable account with $43,035.
  • Cash is an asset and it is decreased by $43,035. Therefore, credit cash account with $43,035.

Record the journal entry of Company N.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

March 13 Merchandise Inventory   15,239  
  Accounts payable     15,239 (2)
  (To record purchase on account)      

Table (4)

Working Note:

Calculate the amount of accounts payable.

Purchases = $15,550

Discount percentage = 2%

Amount of accounts payable} = (PurchasesDiscount)=Purchases(Purchases×2%)= $15,550 – ($15,550×2%)= $15,550$311=$15,239 (2)

Explanation:

  • Merchandise Inventory is an asset and it is increased by $15,239. Therefore, debit Merchandise Inventory account with $15,239.
  • Accounts payable is a liability and it is increased by $15,239. Therefore, credit accounts payable account with $15,239.

Record the journal entry of Company N.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

March 14 Accounts payable   3,675 (3)  
        Merchandise Inventory     3,675
  (To record purchase return)      

Table (5)

Working Note:

Calculate the amount of accounts payable.

Purchases return = $3,750

Discount percentage = 2%

Amount of accounts payable} = (Purchases returnDiscount)=Purchases return(Purchases return×2%)= $3,750 – ($3,750×2%)= $3,750$75=$3,675 (3)

Explanation:

  • Accounts payable is a liability and it is decreased by $3,675. Therefore, debit accounts payable account with $3,675.
  • Merchandise Inventory is an asset and it is decreased by $3,675. Therefore, credit Merchandise Inventory account with $3,675.

Record the journal entry of Company N

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