Question

James Company began the month of October with inventory of $17,000. The following inventory transactions occurred during the month: The company purchased merchandise on account for $25,000 on October 12. Terms of the purchase were 3/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $520 were paid in cash. On October 31, James paid for the merchandise purchased on October 12. During October merchandise costing $18,300 was sold on account for $28,400. It was determined that inventory on hand at the end of October cost $23,470.

1. The company purchased merchandise on account for $25,000 on October 12. Terms of the purchase were 3/10, n/30. James uses the net method to record purchases.

2. The merchandise was shipped f.o.b shipping point and freight chargers of $520 were paid in cash.

3. On October 31, James paid the merchandise purchased of October 12.

4. Record the sale of merchandise on account.

5. Record the cost of goods sold.

6. Record any necessary adjusting entries when the inventory on hand at the end of October cost $23,470.  

A) Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

B) Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. James considers purchase discounts lost as part of interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Dear Student ,

Below answer relates to Both inventory system - Periodic + Perpetual Inventory system and complete Journal Entry with Cost of goods amount derived ..

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	James company began month October with Inventory $ 17000
	The company purchased merchandise on account of $ 25000
	n Oct 2. terms of the purchase 3/10.n/30
	James used Net Method to record Purchase
	The merchandise shippimg on FOB basis
	Freight charges $ 520
	On 31st oct , James paid the merchandise Purchasd on Oct 12
	Record Sale of Merchant on account
	Record the Cost of goods sold
	Record any necessary adjsting entries
	Invetory on hand -- Oct end cost $ 23470
	In the Question , Time period between 12th Oct Vs 31st oct =Gap of 10 days
	So James can not enjoy discount . James can do Interest
		Amnt($)
	2% on $ 25000	500
	Also Freight Charges	520
Anser b )	Periodic Method
	Assuming James company using Periodic method of Inventory accounting
	James consider Purchase discount LOST as part of Interest Expense
	Amount to paid to Supplier	Amnt($)
	Purchase Price	25,000
	Less - Discount	500
	Payable to Supplier	24,500
Oct-12	Detail	Debit($)	Credit($)
	Purchase	24,500
	Account Payable		24,500
	( to account Purchase of Inventory)
Oct-12	Freight Expemse	520
	Cash		520
	( To account Freight Cost)
Oct 31	Account Payable	24,500
	Interest Expnses	500
	Cash		25,000
	( To account - payment made to Supplier)
	As per Question, Merchandise costing $ 18300 and sold $ 28400
Oct 31	Account Receivable	28,400
	Sales		28,400
	No Entry required relates to Cost of Goods
	Sold as per periodic entry level
Oct 31	YEAR End Journal Entry
	Detail	Debit($)	Credit($)
	Cost of goods sold	18,550
	Ending Inventory	23,470
	Opening Inventory		17,000
	Purchase - Inventory		24,500
	Freight Expemse		520
Answer a)	Perpetual Inventory System
Oct-12	Detail	Debit($)	Credit($)
	Inventory	24,500
	Account payable		24,500
	( To account purchae of Inventory
Oct-12	Inventory	520
	cash		520
	( Account Freight cost )
Oct-12	Account payable	24,500
	Interest Expnses	500
	Cash		25,000
	( To account paid on above Accounts
	Payable amount
Oct 31	Account Receivable	28,400
	Sales		28,400
	( to accounted sales transaction)
Oct 31	Cost of goods sold	18,550
	Inventory		18,550
	( to accounted cost of goods sold)
	No entry required at year End