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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Recording Sale and Purchase Transactions

Alpharack Company sells a line of tennis equipment to retailers. Alpharack uses the perpetual inventory system and engaged in the following transactions during April 2019, its first month of operations:

a. On April 2, Alpharack purchased, on credit, 360 Wilbur T-100 tennis rackets with credit terms of 2/10, n/30. The rackets were purchased at a cost of S30 each. Alpharack paid Barker Trucking $195 to transport the tennis rackets from the manufacturer to Alpharack’s warehouse, shipping terms were F.O.B. shipping point, and the items were shipped on April 2.

b. On April 3, Alpharack purchased, for cash, 115 packs of tennis balls for $10 per pack.

c. On April 4, Alpharack purchased tennis clothing, on credit, from Designer Tennis Wear. The cost of the clothing was $8,250. Credit terms were 2/10, n/25.

d. On April 10, Alpharack paid for the purchase of the tennis rackets in Transaction a.

e. On April 15, Alpharack determined that $325 of the tennis clothing was defective. Alpharack returned the defective merchandise to Designer Tennis Wear.

f. On April 20, Alpharack sold 1 18 tennis rackets at $90 each, 92 packs of tennis balls at $12 per pack, and $5,380 of tennis clothing. All sales were for cash. The cost of the merchandise sold was $7,580 and no sales returns are expected.

g. On April 23, customers returned $860 of the merchandise purchased on April 20. The cost of the merchandise returned was $450.

h. On April 25, Alpharack sold another 55 tennis rackets, on credit, for $90 each and 15 packs of tennis balls at $12 per pack, for cash. The cost of the merchandise sold was $1,800.

i. On April 29, Alpharack paid Designer Tennis Wear for the clothing purchased on April 4 minus the return on April 15.

j. On April 30, Alpharack purchased 20 tennis bags, on credit, from Bag Designs for $320. The bags were shipped F.O.B. destination and arrived at Alpharack on May 3.

Required:

1. Prepare the journal entries to record the sale and purchase transactions for Alpharack during April 2019.

2. Assuming operating expenses of $8,500 and income taxes of $1,180, prepare Alpharack’s income statement for April 2019.

To determine

(a)

Recording the transaction:

The transactions of sales and purchases are recorded at the time of sale and purchase of goods by debiting one account and crediting the other account.

The journal entries to record the sale and purchase for Alphatrack.

Explanation

Ledgers prepared on the basis of journal entries. Whenever accounts are prepared, firstly there is journal entry than ledger prepares as per debit and credit entries of journals.

Following are the journal entries for the month of April, 2019 :

a.

Date Particular Debit $ Credit $
Apr 2 Inventory account (360×$30) 10800
Accounts Payable 10800
(To record purchase on account)
Date Particular Debit $ Credit $
Apr 2 Inventory 195
Cash 195
(To record transportation cost)

Goods purchased on FOB basis, buyer will pay the transportation cost. The value of transportation cost will be included in inventory cost.

b. Inventory Purchased on cash basis, cash account credit and inventory account debit.

Date Particular Debit $ Credit $
Apr 3 Inventory (115×$10) 1150
Cash 1150
(To record purchase entry)

c. Inventory Purchased on credit basis, account payable is credit and inventory account debit.

Date Particular Debit $ Credit $
Apr 4 Inventory 8250
Accounts payable 8250
(To record purchase)

d. Payment made with discount @2% on cash basis, cash and discount account credit and payable account debit.

Date Particular Debit $ Credit $
Apr 10 Accounts Payable 10800
Purchase discount (10800 x 2%) 216
Cash 10584
(To record payment with discount)

e. Goods return, inventory account credit and accounts payable debit to reduce the effect of return.

Date Particular Debit $ Credit $
Apr 15 Accounts Payable 325
Inventory 325
(To record purchase return)

f. Sales made on cash basis. The cash account is debit and revenue account credit

To determine

(b)

Inventory costing methods:

FIFO, LIFO and average cost method, are those method which used for calculation of closing inventory and cost of goods sold.

The income statement of Alpharack for April 2019.

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