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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
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 merchandise sold is $67, 200. Shore Co. paid freight of $1,800. Journalize the entries for Shore Co . and Blue Star Co. for the sale , purchase, and payment of amount due.

To determine

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

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

To Record: The sales transactions in the books of Company S.

Explanation

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

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

Table (1)

Working Note:

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 (1)

  • 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.

Date Accounts and Explanation Debit ($) Credit ($)
  Cost of Merchandise Sold 67,200  
  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.

Date Accounts and Explanation Debit ($) Credit ($)
  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.

Date Account 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:

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 (2)

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

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