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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

Sales-related and purchase-related transactions using perpetual inventory system

The following were selected from among the transactions completed by Babcock Company during November of the current year:

Nov. 3 Purchased merchandise on account from Moonlight Co., list price $85,000, trade discount 25%, terms FOB destination, 2/10, n/30.
4. Sold merchandise for cash, $37,680. The cost of the merchandise sold was $22,600.
5. Purchased merchandise on account from Papoose Creek Co., $47,500, terms FOB shipping point, 2/10, n/30, with prepaid freight of $810 added to the invoice.
6. Returned $13,500 C$18,000 list price less trade discount of 25%) of merchandise purchased on November 3 from Moonlight Co.
8. Sold merchandise on account to Quinn Co., $15,600 with terms n/15. The cost of the merchandise sold was $9,400.
13. Paid Moonlight Co. on account for purchase of November 3, less return of November 6.
14. Sold merchandise on VISA, $236,000. The cost of the merchandise sold was $140,000.
15. Paid Papoose Creek Co. on account for purchase of November 5.
23. Received cash on account from sale of November 8 to Quinn Co.
24. Sold merchandise on account to Rabel Co., $56,900, terms 1/10, n/30. The cost of the merchandise sold was $34,000.
28. Paid VISA service fee of $3,540.
30. Paid Quinn Co. a cash refund of $6,000 for returned merchandise from sale of November 8. The cost of the returned merchandise was $3,300.

Instructions

Journalize the transactions.

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 B during the month of November using perpetual inventory system.

Explanation

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 of Company B during November.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 3 Merchandise Inventory   62,475  
  Accounts payable     62,475 (1)
  (To record purchase on account)      

Table (1)

Working Note:

Calculate the amount of accounts payable.

Purchases = $85,000

Trade discount percentage = 25%

Discount percentage = 2%

Amount of accounts payable} = [(PurchasesTradeDiscount)Discount]=[Purchases(Purchases×25%)2%][$85,000 – ($85,000×25%)2%]= $85,000$21,2502%=$63,7502%=$62,475 (1)

Explanation:

  • Merchandise Inventory is an asset and it is increased by $62,475. Therefore, debit Merchandise Inventory account with $62,475.
  • Accounts payable is a liability and it is increased by $62,475. Therefore, credit accounts payable account with $62,475.

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

Date Accounts and Explanation Debit ($) Credit ($)
November 4 Cash 37,680  
         Sales Revenue   37,680
  (To record the sale of inventory on cash)    

Table (2)

Explanation

  • Cash is an asset and it is increased by $37,680. Therefore, debit cash account with $37,680.
  • Sales revenue is revenue and it increases the value of equity by $37,680. Therefore, credit sales revenue with $37,680.

Record the journal entry for cost of goods sold.

Date Accounts and Explanation Debit ($) Credit ($)
November 4 Cost of Merchandise Sold 22,600  
  Merchandise Inventory   22,600
  (To record the cost of goods sold)    

Table (3)

Explanation

  • Cost of merchandise sold is an expense account and it decreases the value of equity by $22,600. Therefore, debit cost of merchandise sold account with $22,600.
  • Merchandise Inventory is an asset and it is decreased by $22,600. Therefore, credit inventory account with $22,600.

Record the journal entry of Company B.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 5 Merchandise Inventory   47,360  
  Accounts payable     47,360 (2)
  (To record purchase on account)      

Table (4)

Working Note:

Calculate the amount of accounts payable.

Purchases = $47,500

Discount percentage = 2%

Freight charges = $810

Amount of accounts payable} = [(PurchasesDiscount)+Freight]=[Purchases(Purchases×2%)+Freight][$47,500 – ($47,500×2%)+$810]= $47,500$950+$810=$47,360 (2)

Explanation:

  • Merchandise Inventory is an asset and it is increased by $47,360. Therefore, debit Merchandise Inventory account with $47,360.
  • Accounts payable is a liability and it is increased by $47,360. Therefore, credit accounts payable account with $47,360.

Record the journal entry of Company B.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 6 Accounts payable   13,230 (3)  
        Merchandise Inventory     13,230
  (To record purchase return)      

Table (5)

Working Note:

Calculate the amount of accounts payable.

Purchases return = $13,500

Discount percentage = 2%

Amount of accounts payable} = (Purchases returnDiscount)=Purchases return(Purchases return×2%)= $13,500 – ($13,500×2%)= $13,500$270=$13,230 (3)

Explanation:

  • Accounts payable is a liability and it is decreased by $13,230. Therefore, debit accounts payable account with $13,230.
  • Merchandise Inventory is an asset and it is decreased by $13,230. Therefore, credit Merchandise Inventory account with $13,230.

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

Date Accounts and Explanation Debit ($) Credit ($)
November 8 Accounts Receivable 15,600  
         Sales Revenue   15,600
  (To record the sale of inventory on account)    

Table (6)

Explanation

  • Accounts Receivable is an asset and it is increased by $15,600. Therefore, debit accounts receivable with $15,600.
  • Sales revenue is revenue and it increases the value of equity by $15,600. Therefore, credit sales revenue with $15,600.

Record the journal entry for cost of goods sold.

Date Accounts and Explanation Debit ($) Credit ($)
November 8 Cost of Merchandise Sold 9,400  
  Merchandise Inventory   9,400
  (To record the cost of goods sold)    

Table (7)

Explanation

  • Cost of merchandise sold is an expense account and it decreases the value of equity by $9,400

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