NVENTORY TRANSACTIONS, INVENTORY EQUATION, AND THE INCOME STATEMENT (42 points)
ID: 2519993 • Letter: N
Question
NVENTORY TRANSACTIONS, INVENTORY EQUATION, AND THE INCOME STATEMENT (42 points) 1) Record the following selected transactions for Old School Enterprises during the month of August A) August 3 Oild School purchases $25,000 of merchandise for resale from Blue's Wholesalers. Terms are FOB Shipping Point, 2/10, n/30 Blue ships the same day, (7 points) B) August 9: The goods from Blue's Wholesalers arrive. Old School pays off the entire balance, (7 points) c) August 14: Old School sells $12,000 of inventory to Dean Pritchard, terms 3/15, n/60, FOB shipping point, and ships the same day. The sales price is $16,000. (7 points) D) August 17: Dean Pritchard returns $3,000 of defective merchandise (selling price of $4,000) to Old School. The merchandise can be put back in inventory and is valued at 75% of its original cost. (7 points) E) August 19: Dean Pritchard compl him a credit memorandum for $700, and he decides to keep those goods. (7 points) ains that some of the items received are the wrong color. Old School issues F) August 24: Dean Pritchard makes full payment on account.(7 points)Explanation / Answer
Required journals are as below:
a.
Date
Account titles and explanations
P.ref
Debit, $
Credit, $
03/08
Merchandise inventory
25,000
Accounts payable
25,000
To record purchase from B.W on credit at 2/10, n/30 term
b.
2/10, n/30 meaning: The whole $25,000 is to be paid within 10 days from the date of purchase for availing 2% discount; otherwise the whole amount is due to be paid in 30 days.
Here the amount is paid on 9th August, which is within 10 days time from the date of purchase (03/08). Therefore, the discount is availed. Discount received = $25,000 × 2% = $500; the payment of cash would be the balance amount ($25,000 - $500 =) $24,500.
Journal
Date
Account titles and explanations
P.ref
Debit, $
Credit, $
09/08
Accounts payable
25,000
Discount received
500
Cash
24,500
To record payment within 10 days from the date of purchase and availed 2% discount
c.
Journal
Date
Account titles and explanations
P.ref
Debit, $
Credit, $
14/08
Cost of goods sold
12,000
Merchandise inventory
12,000
To record charging the cost of inventory for selling
14/08
Accounts receivable
16,000
Sales revenue
16,000
To record sale of inventory on credit to D.P at 3/15, n/60 term
d.
Journal
Date
Account titles and explanations
P.ref
Debit, $
Credit, $
17/08
Sales return
4,000
Accounts receivable
4,000
To record returned by D.P, those defectives
17/08
Merchandise inventory (3,000 × 75% =)
2,250
Loss of defective inventory
750
Cost of goods sold
3,000
To record inventory of returned defectives
Date
Account titles and explanations
P.ref
Debit, $
Credit, $
03/08
Merchandise inventory
25,000
Accounts payable
25,000
To record purchase from B.W on credit at 2/10, n/30 term
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