Logan Corp. applies perpetual inventory record keeping. At the beginning of the

ID: 2451089 • Letter: L

Question

Logan Corp. applies perpetual inventory record keeping. At the beginning of the year, Logan Corp. had $8,000 worth of inventory on hand. Purchases during the year totaled $40,000 on credit terms of 2/15, n/30. Goods were shopped FOB-shipping point for $300. Upon inspection, goods costing $2,000 were returned. AM purchases are paid early to take advantage of the discount. All sales are on account with credit terms of 1/10, n/30. During the year, sales totaled $100,000 on goods costing $38,000, paying $500 in freight costs, FOB-destination. Damaged goods costing $1,900 against $5,000 account. All but one customer paid early to take advantage of the discount. The last customer paid $5,000 on his account (in full).The year-end count was $10,000. Required: Prepare journal entries under the gross method. Required: Prepare journal entries under the method.

Explanation / Answer

Ans A.Gross Method Journal Entries.

1)Inventories $40000

Accounts Payable $40000

(Purchase of inventory)

2)Inventories $300

Accounts Payable $300

(To record $300 of inbound freight cost associated with the delivery of inventory)

3)Accounts Payable $2000

Inventories $2000

(goods return)

4) Accounts Payable $38000

Discount on Purchase $760

Cash $37240

(payment done within time on credit term 2/15,n30 to avail cash discount)

5)Accounts Receivable $100000

Revenue $100000

Cost of Goods Sold $38000

Inventory $38000

(To record a sale of widgets from inventory for $100000, for which the associated inventory cost is $38000)

6) Inventory $500

Accounts Receivable $500

(Freight Cost)

7) Revenue $5000

Accounts Receivable $5000

Inventories $1900

Cost of Goods Sold $1900

(Dameged goods costing $1900 against $5000 account)

8)Cash $89100

Cash Discount $900

Accounts Receivable $90000

(all but one customer paid to avail cash discount $90000($100000-$5000-$5000)

9)Cash $5000

Accounts Receivable $5000

(The last customer paid $5000 on his account (full))

Ans B.Net Method Journal Entries.

1)Inventories $40000

Accounts Payable $40000

(Purchase made)

2) Accounts Payable $1700

Inventory $1700

(purchases retun adjusted against Fob cost)

3) Accounts Payable $38000