Question

Perpetual System—Recording Inventory Related Entries using the Gross Method

Columbus Music Inc. maintains a perpetual inventory system and uses the gross method to record purchases. The following transactions occurred during the month of March 2020, for its major inventory line.

Prepare journal entries for transactions a through e.

Note: Round you answers to the nearest whole dollar.

a. Purchase of merchandise inventory on March 1, 2020, for $14,400 on account, terms 1/10, n/30.

b. Paid cash of $144 for freight charges on March 1, 2020, related to the purchase.

c. Returned $108 of merchandise on March 5, 2020, and received a credit from the vendor.

d. Paid the balance due to the vendor on March 8, 2020.

e. Sold merchandise inventory on March 15, 2020, for $9,000 with a cost of $6,000.

Answer 1

Journal entry

No	date	account and explanation	Debit	Credit
a	Mar 1	Merchandise inventory	14400
		Account payable		14400
b	Mar 1	Merchandise inventory	144
		cash		144
c	Mar 5	Account payable	108
		Merchandise inventory		108
d	Mar 8	Account payable (14400-108)	14292
		Cash (14292*99%)		14149
		Merchandise inventory		143
e	Mar 15	Account receivable	9000
		Sales revenue		9000
		Cost of goods sold	6000
		Merchandise inventory		6000