[The following information applies to the questions displayed below.] Littleton
ID: 2544443 • Letter: #
Question
[The following information applies to the questions displayed below.]
Littleton Books has the following transactions during May.
May 2 Purchases books on account from Readers Wholesale for $4,100, terms 2/10, n/30.
May 3 Pays cash for freight costs of $280 on books purchased from Readers.
May 5 Returns books with a cost of $400 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 $4,800 on account.
Record the transactions of Littleton Books, assuming the company uses a perpetual inventory system. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field).
-Purchases books on account from Readers Wholesale for $4,100, terms 2/10, n/30.
-Pays cash for freight costs of $280 on books purchased from Readers.
-Returns books with a cost of $400 to Readers because part of the order is incorrect.
-Pays the full amount due to Readers.
-Record the sale of inventory on account.
-Record cost of inventory sold.
Explanation / Answer
Journal Entries in the Books of Littleton Books
Date
Account titles and explanation
Debit
Credit
May 2
Inventory
4,100
Accounts Payable
4,100
(to record credit purchase)
May 3
Inventory
280
Cash
280
(to record freight paid)
May 5
Accounts Payable
400
Inventory
400
(to record return of goods)
May 10
Accounts Payable (4,100 -400)
3,700
Inventory (3,700 * 2%)
74
Cash (3,700 – 74)
3,626
(to record payment to readers and availing 2% discount)
May 30
Accounts receivable
4,800
Sales revenue
4,800
(to record credit sale)
May 30
Cost of goods sold
3,906
Inventory
3,906
(to record cost of goods sold)
Working Notes:
Cost of Goods sold
Inventory purchased
4,100
Add: Freight Paid
280
Less: Inventory return
400
Less: Discount on payment
74
Cost of goods Sold
3,906
Note: Under perpetual inventory system all the discounts received and expenses related to purchases such freight, insurance etc. will directly charge to inventory account
Journal Entries in the Books of Littleton Books
Date
Account titles and explanation
Debit
Credit
May 2
Inventory
4,100
Accounts Payable
4,100
(to record credit purchase)
May 3
Inventory
280
Cash
280
(to record freight paid)
May 5
Accounts Payable
400
Inventory
400
(to record return of goods)
May 10
Accounts Payable (4,100 -400)
3,700
Inventory (3,700 * 2%)
74
Cash (3,700 – 74)
3,626
(to record payment to readers and availing 2% discount)
May 30
Accounts receivable
4,800
Sales revenue
4,800
(to record credit sale)
May 30
Cost of goods sold
3,906
Inventory
3,906
(to record cost of goods sold)
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