The following selected transactions were completed during August between Summit Company and Beartooth Co.: Aug. 1...
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., $48,000, terms FOB destination, 2/15, n/eom. The cost of the merchandise sold was $28,800. |
| 2 | Summit Company paid freight of $1,150 for delivery of merchandise sold to Beartooth Co. on August 1. | |
| 5 | Summit Company sold merchandise on account to Beartooth Co., $66,000, terms FOB shipping point, n/45. The cost of the merchandise sold was $40,000. | |
| 9 | Beartooth Co. paid freight of $2,300 on August 5 purchase from Summit Company. | |
| 15 | Summit Company sold merchandise on account to Beartooth Co., $58,700, terms FOB shipping point, 1/10, n/30. Summit Company paid freight of $1,675, which was added to the invoice. The cost of the merchandise sold was $35,000. | |
| 16 | Beartooth Co. paid Summit Company for purchase of August 1. | |
| 20 | Summit Company paid Beartooth Co. a refund of $1,800 for defective merchandise in the August 1 purchase. Beartooth Co. agreed to keep the merchandise. | |
| 25 | Beartooth Co. paid Summit Company on account for purchase of August 15. | |
| 31 | Summit Company granted a customer allowance (credit memo) to Beartooth Co. for $6,000 (invoiced amount) for merchandise that was returned from the August 1 purchase. The cost of the merchandise returned was $3,200. |
Required:
| Journalize the August transactions for (1) Summit Company and (2) Beartooth Co. Refer to the Chart of Accounts of the appropriate company for exact wording of account titles. |
***Listed below is counted correct on the class form.***
Accounts Receivable-Beartooth Co. 47,040
Sales 47,040
Cost of Merchandise Sold 28,000
Merchandise Inventory 28,000
General hint: Journalize Summit Co. transactions from the seller's point of view and Beartooth Co., transactions from the buyer's point of view.
Aug. 1. Seller – Note that FOB destination freight is the seller's expense. Often freight must be prepaid for the carrier to deliver. Two entries are required: (1) for the sale on account and (2) for the cost of the merchandise sold and inventory decrease on the seller's records.
Aug. 2. Seller - Freight expense increases the cost of the merchandise. However, freight is typically prepaid in cash. There is no mention in the problem of adding this cost to the buyer's invoice.
Aug. 5. (1) Seller - Two entries are required for: (1) the sale on account and (2) the cost of the merchandise sold and inventory decrease on the seller's records.
Aug. 9. Seller – Not applicable.
General hint: FOB shipping point freight is the buyer's cost, while FOB destination freight is the seller's expense.
Aug. 15. Seller: Two entries are required for: (1) the sale on account and (2) the cost of the merchandise sold and inventory decrease on the seller's records.
Aug. 16. (1) Seller: The return of merchandise reduces the original invoice amount paid by the buyer. The discount is taken on the amount owed on the merchandise.
Aug. 25. (1) Seller: Since the invoice was paid within the discount period, the seller debits Cash and credits Accounts Receivable for the discounted amount.
Aug. 31. (1) Seller & (2) Seller: Since no discount was offered, no discounts are recorded. The cash paid on account is in each case is equal to the invoice and reduces the Accounts Receivable for the seller and the Accounts Payable for the buyer.
(2) Journalize the August transactions for Beartooth Co. Refer to the Chart of Accounts of the appropriate company for exact wording of account titles.
General hint: Journalize Summit Company transactions from the seller's point of view and Beartooth Co., transactions from the buyer's point of view.
Aug. 1. Buyer - Using the perpetual inventory system, purchases of inventory on account are recorded by debiting the merchandise inventory account and crediting the accounts payable account. Under FOB shipping point, freight is paid by the buyer, while FOB destination freight is the seller's expense. Often freight must be prepaid for the carrier to deliver.
Aug. 2. Buyer – Not applicable.
Aug. 5. Buyer - Using the perpetual inventory system, purchases of inventory on account are recorded by debiting the merchandise inventory account and crediting the accounts payable account. Under FOB shipping point, freight is paid by the buyer, while FOB destination freight is the seller's expense. Often freight must be prepaid for the carrier to deliver.
Aug. 9. Buyer - Payment of freight expense is added to the cost of the merchandise and is typically prepaid in cash.
General hint: FOB shipping point freight is the buyer's cost, while FOB destination freight is the seller's expense.
Aug. 15. Buyer: Using the perpetual inventory system, purchases of inventory on account are recorded by debiting the merchandise inventory account and crediting the accounts payable account. Added freight expense increases the cost of the merchandise.
Aug. 16. (2) Buyer: Returns are not eligible for discounts. Since the invoice is paid within the discount period, Accounts Payable is debited for the discounted amount. The cash paid on account is the difference between the invoice and the discount.
Aug. 25. (2) Buyer: Since the invoice is paid within the discount period, buyer debits Accounts Receivable and credits Cash and for the discounted amount.
Aug. 31. (1) Buyer & (2) Buyer: Since no discount was offered, no discounts are recorded. The cash paid on account is in each case is equal to the invoice and reduces the Accounts Receivable for the seller and the Accounts Payable for the buyer.
Homework Answers
| 1 | Summit Co. | |||||||
| Journal | ||||||||
| Date | Description | Debit | Credit | |||||
| Aug 1. | Accounts receivable-Beartooth Co. | 48000 | ||||||
| Sales | 48000 | |||||||
| (Goods sold on account) | ||||||||
| Cost of merchandise sold | 28800 | |||||||
| Merchandise inventory | 28800 | |||||||
| (Cost of goods sold recorded) | ||||||||
| Aug 2. | Delivery expense | 1150 | ||||||
| Cash | 1150 | |||||||
| (Fright charges paid) | ||||||||
| Aug 5. | Accounts receivable-Beartooth Co. | 66000 | ||||||
| Sales | 66000 | |||||||
| (Goods sold on account) | ||||||||
| Cost of merchandise sold | 40000 | |||||||
| Merchandise inventory | 40000 | |||||||
| (Cost of goods sold recorded) | ||||||||
| Aug 9. | No entry | |||||||
| (FOB shipping point-Freight is the responsibility of | ||||||||
| buyer) | ||||||||
| Aug 15. | Accounts receivable-Beartooth Co. | (58700+1675) | 60375 | |||||
| Sales | 60375 | |||||||
| (Goods sold on account) | ||||||||
| Cost of merchandise sold | 35000 | |||||||
| Merchandise inventory | 35000 | |||||||
| (Cost of goods sold recorded) | ||||||||
| Delivery expense | 1675 | |||||||
| Cash | 1675 | |||||||
| (Fright charges paid) | ||||||||
| Aug 16. | Cash | (48000-960) | 47040 | |||||
| Sales discount | (48000*2%) | 960 | ||||||
| Accounts receivable-Beartooth Co. | 48000 | |||||||
| (Cash received from customer) | ||||||||
| Aug 20. | Sales returns and allownaces | 1800 | ||||||
| Cash | 1800 | |||||||
| (Refund given for the defective merchandise) | ||||||||
| Aug 25. | Cash | (60375-604) | 59771 | |||||
| Sales | (60375*1%) | 604 | ||||||
|
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instucions The following selected transactions were completed during August between Summit Company and Beartooth Co.: Aug 1 2 5 Summit Company sold merchandise on account to Beartooth Co., 348,000, terrs FOB destination. 2/15, n/eom. The cost of the goods sold was $28,800. Summit Company paid freight of $1,150 for delivery of merchandise sold to Beartooth Co. on August 1 Summit Company sold merchandise on account to Beartooth Co., 566,000, terms FOB shipping point n/eom. The cost of the goods sold...
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