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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 for seller and buyer using perpetual inventory system

The following selected transactions were completed during April between Swan Company and Bird Company:

Apr. 2. Swan Company sold merchandise on account to Bird Company, $32,000, terms FOB shipping point, 2/10, n/30. Swan Company paid freight of $330, which was added to the invoice. The cost of the merchandise sold was $19,200.
8. Swan Company sold merchandise on account to Bird Company, $49,500, terms FOB destination, 1/15, n/30. The cost of the merchandise sold was $29,700.
8. Swan Company paid freight of $710 for delivery of merchandise sold to Bird Company on April 8.
12. Bird Company paid Swan Company for purchase of April 2.
18. Swan Company paid Bird Company a refund of $2,000 for defective merchandise in the April 2 purchase. Bird Company agreed to keep the merchandise.
23. Bird Company paid Swan Company for purchase of April 8.
24. Swan Company sold merchandise on account to Bird Company, $67,350, terms FOB shipping point, n/45. The cost of the merchandise sold was $40,400.
26. Bird Company paid freight of $875 on April 24 purchase from Swan Company.
30. Swan Company granted a customer allowance (credit memo) to Bird Company for $ 11,300 for merchandise that was returned from the August 24 purchase. The cost of the merchandise returned was $6,500.

Instructions

Journalize the April transactions for (1) Swan Company and (2) Bird Company.

(1)

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 S during the month of April 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 for the sale of inventory on account.

Date Accounts and Explanation Debit ($) Credit ($)
April 2 Accounts Receivable 31,360 (1)  
         Sales Revenue   31,360
  (To record the sale of inventory on account)    

Table (1)

Working Note:

Calculate the amount of accounts receivable.

Sales = $32,000

Discount percentage = 2%

Amount of accounts receivable} = (SalesDiscount)=Sales(Sales×2%)= $32,000 – ($32,000×2%)= $32,000$640=$31,360 (1)

Explanation

  • Accounts receivable is an asset and it is increased by $31,360. Therefore, debit accounts receivable with $31,360.
  • Sales revenue is revenue and it increases the value of equity by $31,360. Therefore, credit sales revenue with $31,360.

Record the journal entry for the freight paid.

Date Accounts and Explanation Debit ($) Credit ($)
April 2 Accounts Receivable 330  
         Cash   330
  (To record the freight paid)    

Table (2)

Explanation

  • Accounts receivable is an asset and it is increased by $330. Therefore, debit accounts receivable with $330.
  • Cash is an asset and it is decreased by $330. Therefore, credit cash account with $330.

Record the journal entry for cost of goods sold.

Date Accounts and Explanation Debit ($) Credit ($)
April 2 Cost of Merchandise Sold 19,200  
  Merchandise Inventory   19,200
  (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 $19,200. Therefore, debit cost of merchandise sold account with $19,200.
  • Merchandise Inventory is an asset and it is decreased by $19,200. Therefore, credit inventory account with $19,200.

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

Date Accounts and Explanation Debit ($) Credit ($)
April 8 Accounts Receivable 49,005 (2)  
         Sales Revenue   49,005
  (To record the sale of inventory on account)    

Table (4)

Working Note:

Calculate the amount of accounts receivable.

Sales = $49,500

Discount percentage = 1%

Amount of accounts receivable} = (SalesDiscount)=Sales(Sales×1%)= $49,500 – ($49,500×1%)= $49,500$495=$49,005 (2)

Explanation

  • Accounts receivable is an asset and it is increased by $49,005. Therefore, debit accounts receivable with $49,005.
  • Sales revenue is revenue and it increases the value of equity by $49,005. Therefore, credit sales revenue with $49,005.

Record the journal entry for cost of goods sold.

Date Accounts and Explanation Debit ($) Credit ($)
April 8 Cost of Merchandise Sold 29,700  
  Merchandise Inventory   29,700
  (To record the cost of goods sold)    

Table (5)

Explanation

  • Cost of merchandise sold is an expense account and it decreases the value of equity by $29,700. Therefore, debit cost of merchandise sold account with $29,700.
  • Merchandise Inventory is an asset and it is decreased by $29,700. Therefore, credit inventory account with $29,700.

Record the journal entry for delivery expense.

Date Accounts and Explanation Debit ($) Credit ($)
April 8 Delivery expense 710  
  Cash   710
  (To record the payment of delivery expenses)    

Table (6)

Explanation

  • Delivery expense is an expense account and it decreases the value of equity by $710

(2)

To determine
  Preparejournal entries to record the transactions of Company B during the month of April using perpetual inventory system.

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