Question

Sales-Related and Purchase-Related Transactions for Seller and Buyer Using Perpetual Inventory System

The following selected transactions were completed during August between Summit Company and Beartooth Co.:

Sales-Related and Purchase-Related Transactions for Seller and Buyer Using Perpetual Inventory System The following selected transactions were completed during August between Summit Company and Beartooth Co.: Aug. 1. Summit Company sold merchandise on account to Beartooth Co., $48,750, terms FOB destination, 2/15, n/eom. The cost of the goods sold was $27,000. 2. Summit Company paid freight of $1,130 for delivery of merchandise sold to Beartooth Co. on August 1. 5. Summit Company sold merchandise on account to Beartooth Co., $66,610, terms FOB shipping point, n/eom. The cost of the goods sold was $41,420. 9. Beartooth Co. paid freight of $2,440 on August 5 purchase from Summit Company. 15. Summit Company sold merchandise on account to Beartooth Co., $63,400, terms FOB shipping point, 1/10, n/30. Summit paid freight of $1,770, which was added to the invoice. The cost of the goods sold was $35,670. 16. Beartooth Co. paid Summit Company for purchase of August 1. 25. Beartooth Co. paid Summit Company on account for purchase of August 15. 31. Beartooth Co. paid Summit Company on account for purchase of August 5.

. Journalize the August transactions for Beartooth Co. (the buyer).

Date	Account	Debit	Credit
Aug. 1	Inventory
	Accounts Payable-Summit Company

Date	Account	Debit	Credit
Aug. 5	Inventory
	Accounts Payable-Summit Company

Date	Account	Debit	Credit
Aug. 9	Inventory
	Cash

Date	Account	Debit	Credit
Aug. 15	Inventory
	Accounts Payable-Summit Company

Date	Account	Debit	Credit
Aug. 16	Accounts Payable-Summit Company
	Cash

Date	Account	Debit	Credit
Aug. 25	Accounts Payable-Summit Company
	Cash

Date	Account	Debit	Credit
Aug. 31	Accounts Payable-Summit Company
	Cash

2. Journalize the August transactions for Summit Company (the seller).

Date	Account	Debit	Credit
Aug. 1	Accounts Receivable-Beartooth Co.
	Sales

Date	Account	Debit	Credit
Aug. 1	Cost of Goods Sold
	Inventory

Date	Account	Debit	Credit
Aug. 2	Delivery Expense
	Cash

Date	Account	Debit	Credit
Aug. 5	Accounts Receivable-Beartooth Co.
	Sales

Date	Account	Debit	Credit
Aug. 5	Cost of Goods Sold
	Inventory

Date	Account	Debit	Credit
Aug. 15	Accounts Receivable-Beartooth Co.
	Sales

Date	Account	Debit	Credit
Aug. 15	Accounts Receivable-Beartooth Co.
	Cash

Date	Account	Debit	Credit
Aug. 15	Cost of Goods Sold
	Inventory

Date	Account	Debit	Credit
Aug. 16	Cash
	Accounts Receivable-Beartooth Co.

Date	Account	Debit	Credit
Aug. 25	Cash
	Accounts Receivable-Beartooth Co.

Date	Account	Debit	Credit
Aug. 31	Cash
	Accounts Receivable-Beartooth Co.

Answer 1

Solution

1. Journalize the August transactions for Beartooth Company (the buyer):

Date	Account	Debit	Credit
Aug-01	Inventory	$48,750
	Accounts Payable - Summit Company		$48,750
Aug-05	Inventory	$66,610
	Accounts Payable - Summit Company		$66,610
Aug-09	Inventory	$2,440
	Cash		$2,440
Aug-15	Inventory	$65,170
	Accounts Payable - Summit Company		$65,170
Aug-16	Accounts Payable - Summit Company	$47,775
	Cash		$47,775
Aug-25	Accounts Payable - Summit Company	$64,536
	Cash		$64,536
Aug-31	Accounts Payable - Summit Company	$66,610
	Cash		$66,610

Computations and notes:

As per the perpetual inventory system, inventory, cost of goods sold are continuously updated for each sale or purchase transaction as well as return transaction. The purchases and sales are recorded net of discount.

For August 2^nd transaction freight is paid by Summit Co., the purchase is FOB destination, hence the freight is borne by Summit Co. Hence, the freight is not recorded for Beartooth Co.

For August 5^th transaction, the purchase is FOB shipping point, hence the freight is to be borne by buyer, Beartooth. Freight paid by Beartooth on August 9^th is recorded.

For August 15^th transaction, the terms are FOB shipping point, hence the freight paid by Summit is added to the invoice.

Under perpetual inventory system, payments towards accounts payable are recorded net of discount. Hence, August 16^th transaction, is recorded net of discount as follows,

Accounts payable - $48,750

Cash discount = 2% x 48,750 = $975

Net cash paid to Summit = 48,750 – 975 = $47,775

For August 25^th transaction,

Net cash paid = 63,400 – 1% 63,400 = $62,766

Plus freight paid by Summit = $1,770

Total payment = $64,536

2. Journal entries in the books of seller:

Date	Account	Debit	Credit
Aug-01	Accounts Receivable - Beartooth Co.	$48,750
	Sales		$48,750
Aug-01	Cost of Goods Sold	$27,000
	Inventory		$27,000
Aug-02	Delivery Expense	$1,130
	Cash		$1,130
Aug-05	Accounts Receivable - Beartooth Co.	$66,610
	Sales		$66,610
Aug-05	Cost of Goods Sold	$41,420
	Inventory		$41,420
Aug-15	Accounts Receivable - Beartooth Co.	$63,400
	Sales		$63,400
Aug-15	Accounts Receivable - Beartooth Co.	$1,770
	Cash		$1,770
Aug-15	Cost of Goods Sold	$35,670
	Inventory		$35,670
Aug-16	Cash	$47,775
	Accounts Receivable - Beartooth Co.		$47,775
Aug-25	Cash	$64,536
	Accounts Receivable - Beartooth Co.		$64,536
Aug-31	Cash	$66,610
	Accounts Receivable - Beartooth Co.		$66,610

Notes:

The cash received from Beartooth on August 16^th is computed as follows,

The cash received is recorded net of discount given.

Accounts receivable for purchases on 15^th = $63,400

Cash discount 1% = 63,400 x 1% = $634

Cash received net of discount plus freight paid = (63,400 – 634) + 1,770 = $64,536