ACCOUNTING CH6 Questions 6-7 (of 17) The following information applies to the qu
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ACCOUNTING CH6 Questions 6-7 (of 17) The following information applies to the questions displayed beow.] Littleton Books has the following transactions during May May 2 Purchases books on account from Readers Wholesale for $3,400, terms 2/10, n/30. May 3 Pays freight costs of $210 on books purchased from Readers. May 5 Returns books with a cost of $350 to Readers because part of the order is incorrect. May 10 Pays the full amount due to Readers. May 30 Sells all books purchased on May 2 (less those returned on May 5) for $4,100 on account vaue 10.00 points Required: 1. Record the transactions of Litléton Books, assuming the company uses a perpetial inventory system If n account field.) account Teld ooired for a tont actionlevent, select No journal entry required" in the firstExplanation / Answer
JOURNAL ENTRIES TO BE MADE IN THE BOOKS OF LITTLETON:
First we should understand the payment term 2/10,n/30.It represents if payment Invoice amount is paid within 10days from the date of invoice then 2% is allowed else the payment will be made within 30days.
DATE:
MAY 2
Purchase of Books account Dr 3,400
To, Reader (Vendor) Cr 3,400
May-3
Freight charges Dr 210
Bank Cr 210
( Assuming the payment towards freight made by Cheque)
MAY-5: Return books cost of $350 to vendor( Reader)
Vendor( Reader) Dr 350
Purchase account Cr 350
MAY-10( Littleton Pays full amount due to Reader so he is elligible for 2% discount on net purchase since Full invoice paid within 10 days of the Invoice)
Reader Dr 61
Discount recived Cr 61
( Discount 2% on net Purchase( Purchase-Return) $3050)
Payment
Reader Dr 2,989
Bank Cr 2,989
( Payment made to Reader after taking 2% discount on Net purchase)
MAY-30
Trade receivable Dr 4,100
To Sales Cr 4,100
(Sales of books $ 4,100 on account)
Profit on sales of books( 3,400+210-350-61
Total purchase cost of books= 3,400+210-350-61=3,199
Total sales Value of the above books=4,100
So profit=Sales value-Purchase price
= 4,100-3,199
=901.
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