Question

Required information [The following information applies to the questions displayed below.] James Company began the month of October with inventory of $23,000. The following inventory transactions occurred during the month: a. The company purchased merchandise on account for $34,000 on October 12. Terms of the purchase were 3/10, n/30. James uses the net method to record purchases. The merchandise was shipped fo.b. shipping point and freight charges of $580 were paid in cash. b. On October 31, James paid for the merchandise purchased on October 12. c. During October merchandise costing $19,200 was sold on account for $29.600. d. It was determined that inventory on hand at the end of October cost $37,360.

Answer 1

Solution Required 1. Journal entries (perpetual inventory system, net method) Under net method, the merchandise is recorded at the discounted price assuming that the retailer shall take the benefit of the discount by making payment within the discount period. If the retailer fails to make the payment within discount period, the discount is withdrawn by the seller; and the discount is reversed by the retailer in his books. | Credit No 1 Date October 12 Debit | $32,980 General Journal Inventory ($34,000 x (1-0.03)) Accounts Payable (To record purchase of inventory) $32,980 October 12 $580 Inventory Cash (To record freight inward) $580 3 October 31 $32,980 $1,0201 Accounts Payable Purchase discount lost/Interest expense Cash (To record payment to supplier) $34,000 October 31 $29,600 Accounts Receivable Sales revenue (To record merchandise sold) $29,600 5 October 31 $19,2001 Cost of Goods sold Inventory (To record cost of merchandise sold) $19,200 6 October 31 No journal entry required

Required 2. Journal entries (Periodic inventory system, net method) Credit No 1 Date October 12 Debit Debit $32,980 General Journal Purchases ($34,000 x (1-0.03)) Accounts Payable (To record purchase of inventory) $32,980 2 October 12 $580 Freight-in Cash (To record freight inward) $580 3 October 31 $32,980| $1,0201 Accounts Payable Interest expense Cash (To record payment to supplier) $34,000 October 31 $29,600 Accounts Receivable Sales revenue (To record merchandise sold) $29,600 October 31 No journal entry required October 31 $37,360 $19,2001 Inventory (ending) Cost of goods sold (bal. fig.) Purchases Freight-in Inventory (beginning) (To record adjusting entry for cost of goods sold and ending inventory) $32,980 $580 $23,000