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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

Jordan Footwear sells athletic shoes and uses the perpetual inventory system. During June, Jordan engaged in the following transactions its first month of operations:

a. On June1, Jordan purchased, on credit, 100 pairs of basketball shoes and 210 pairs of running shoes with credit terms of 2/10, n/30. The basketball shoes were purchased at a cost of $85 per pair, and the running shoes were purchased at a cost of $60 per pair. Jordan paid Mole Trucking $310 cash to transport the shoes from the manufacturer to Jordan’s warehouse, shipping terms were F.O.B. shipping point, and the items were shipped on June 1 and arrived on June 4.

b. On June 2, Jordan purchased 88 pairs of cross-training shoes for cash. The shoes cost Jordan $65 per pair.

c. On June 6, Jordan purchased 125 pairs of tennis shoes on credit. Credit terms were 2/10, n/25. The shoes were purchased at a cost of $45 per pair.

d. On June 10, Jordan paid for the purchase of the basketball shoes and the running shoes in Transaction a.

e. On June 12, Jordan determined that $585 of the tennis shoes were defective. Jordan returned the defective merchandise to the manufacturer.

f. On June 18, Jordan sold 50 pairs of basketball shoes at $116 per pair, 92 pairs of running shoes for S85 per pair, 21 pairs of cross-training shoes for $100 per pair, and 48 pairs of tennis shoes for $68 per pair. All sales were for cash. The cost of the merchandise sold was $13,295. No sales returns are expected.

g. On June 21, customers returned 10 pairs of the basketball shoes purchased on June 18. The cost of the merchandise returned was $850.

h. On June 23, Jordan sold another 20 pairs of basketball shoes, on credit, for $116 per pair and 15 pairs of cross-training shoes for $100 cash per pair. The cost of the merchandise sold was $2,675.

i. On June 30, Jordan paid for the June 6 purchase of tennis shoes minus the return on June 12.

j. On June 30, Jordan purchased 60 pairs of basketball shoes, on credit, for S85 each. The shoes were shipped F.O.B. destination and arrived at Jordan on July 3.

Required:

1. Prepare the journal entries to record the sale and purchase transactions for Jordan during June 2019.

2. Assuming operating expenses of $5,300 and income taxes of $365, prepare Jordan’s income statement for June 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 Jordan Footwear.

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 June, 2019 :

a.

Date Particular Debit $ Credit $
June 1 Inventory account(100 units×$85)+(210 units×$60) 21100
Accounts Payable 21100
(To record purchase on account)
Date Particular Debit $ Credit $
June 1 Inventory 310
Cash 310
(To record transportation cost)

Goods purchased on FOB basis, buyer will pay the transportation cost. 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 $
June 2 Inventory(88 units×$65) 5720
Cash 5720
(To record purchase entry)

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

Date Particular Debit $ Credit $
June 6 Inventory (125 units×$45) 5625
Accounts payable 5625
(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 $
June 10 Accounts Payable 21100
Purchase discount (21100×2%) 422
Cash 20678
(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 $
June 12 Accounts Payable 585
Inventory 585
(To record purchase return)

f

To determine

(b)

Income Statement:

The statement which shows the profitability of the business for the business and includes revenue, operating expenses, tax expenses, closing inventory and cost of goods sold.

The income statement of Alpharack for June 2019.

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