Grindstone Paving has the following information for one item they sell. At the b

Question

Grindstone Paving has the following information for one item they sell. At the beginning of July, they had 50 units wit a cost of $25 each. Grindstone uses the perpetual inventory system and uses FIFO for inventory valuation. Grindstone charges 5% sales tax on all sales. Prepare the following journal entries. Use the table below the transactions to calculate inventory valuation. Date Transaction Jul 8 Purchased 500 units at $26 each on account, terms 2/10, net 30. Jul 10 100 units to the supplier. Jul 12 Sold 300 units to SouthShore on account at $60 per unit plus tax, terms 2/10, net 30. A portion of the inventory from the above purchase was defective. Grindstone returned The customer from Jul 12 returned 30 units that were not needed. Process the return, including sales tax. The customer from Jul 12 paid their amount owing and claimed their discount. Note Jul 14 the discount is not taken on the sales tax amount. Jul 22 Purchased 350 units on account at $27 per unit with terms of 3/10, net 30. Jul 23 Sold 200 units for $60 each plus tax. Received cash. Jul 25 Took advantage of discount offered and paid up amount owing from the Jul 22 purchase. Jul 31 Remitted the sales tax owing to the government. Grindstone provides warranties on the products they sell. They estimate the warranty to Jul 31 be $2 for each item sold (less any returns) Part 2

Explanation / Answer

1) Purchases a/c DR. 13000

Supplier A/c CR. 13000

2)Supplier A/c DR. 2600

Purchase Return CR. 2600

3) South store DR.18900

Sales Tax CR. 900

Sales CR. 18000

4) Sales Return A/c DR. 1800

Sales Tax DR. 90

South Store CR. 1890

5) Cash a/c DR. 16686

Discount DR. 324

South Store CR. 17010

(300-30)*60=16200-2% discount=15876=a

Sales tax amount 900-90=810=b

total =a+b=16686

6) Purchase dr.9450

Supplier CR. 9450

7) Cash dr. 12600

Sales CR 12000

Sales Tax CR. 600

8) Supplier a/c DR. 9166

Discount DR 284

Cash CR 9450

9) Sales Tax DR. 1410

Cash CR. 1410

10) Total units sold is 470

so the journal entry will be:

Warranty Expense DR. 940 (470*2)

Estimated Warranty Expense CR. 940

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