value: 6.00 polnts usOS a nventory transactions during February. CarsnonWent Com

Question

value: 6.00 polnts usOS a nventory transactions during February. CarsnonWent Comary (CwE)unn perpoetual Inventory syntlon. CWnredito the folowing February 5-CWC sold inventory on acoount to SamBradford Corp. for $490,000, terms 3/10, n/30. This inventory originally cost CWC $316,000. February 10-SamBradford Corp. returned inventory to CWC for a credit of $3,700. CWC returned this inventory back on its shelves and into its inventory at its original cost of $2,386. February 12-SamBradford Corp. paid CWC for the amount owed. Required: a. Prepare the journal entries to record these transactions on the books of CWC. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. View transaction list Journal entry worksheet Record the entry for sale of inventory. Note: Enter debits before credits. Date General Journal Debit Credit Feb 05 Record entry Clear entry View general journal

Explanation / Answer

Solution:

Perpetual Inventory System is the system where inventories are updated after each transaction (i.e. sales or purchase) and the transactions are recorded net of discount.

Net Method is a way to record purchase or sales with a cash discount. The net method assumes that customer always takes advantage of the discounted cash price and record the sale or purchase at the discounted price.

Initially the sale or purchase is recorded at net of cash discount.

Date

General Journal

Debit

Credit

1)

Feb.5

Accounts Receivable

$475,300

Sales Revenue ($490,000*97% net of discount)

$475,300

(Being sales are recorded net of discount)

2)

Feb.5

Cost of Goods Sold

$316,000

Inventories

$316,000

(Cost of Goods Sold is recorded)

3)

Feb.10

Accounts Receivable ($3700*97% net of discount)

$3,589

Sales Return and Allowance

$3,589

4)

Feb10

Inventories

$2,386

Cost of Goods Sold

$2,386

5)

Feb.12

Cash ($475,300 – Return $3,589)

$471,711

Accounts Receivable

$471,711

2)  

Net Sales amount to be reported on Income Statement = Net Sales – Return Sales = $475,300 - $3,589 = $471,711

3)

Gross Profit Percentage = Gross Profit / Net Sales x 100

Gross Profit = Net Sales $471,711 – Cost of Goods Sold ($316,000 – Return $2,386)

= $158,097

Gross Profit Percentage = Gross Profit $158,097 / Net Sales $471,711 x 100

= 34%

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Date

General Journal

Debit

Credit

1)

Feb.5

Accounts Receivable

$475,300

Sales Revenue ($490,000*97% net of discount)

$475,300

(Being sales are recorded net of discount)

2)

Feb.5

Cost of Goods Sold

$316,000

Inventories

$316,000

(Cost of Goods Sold is recorded)

3)

Feb.10

Accounts Receivable ($3700*97% net of discount)

$3,589

Sales Return and Allowance

$3,589

4)

Feb10

Inventories

$2,386

Cost of Goods Sold

$2,386

5)

Feb.12

Cash ($475,300 – Return $3,589)

$471,711

Accounts Receivable

$471,711

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