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. Required: 1. 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.) View transaction list

Answer 1

Under the net method, an invoice will be recorded at invoice value, net of any cash discounts to be allowed.

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Working Note - 1
Purchase cost of merchandise (Gross amount)             (a)	$34,000
Discount percentage                                                     (b)	3%
Discount amount                                                           (c = a x b)	$1,020
Purchase cost of merchandise (net puchase cost)         (a - c)	$32,980

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1. Jounrnal entries under perpetual inventory system:
No.	Date	General Journal	Debit	Credit
1	October 12	Inventory                                              [Refer working note]	$32,980
		Accounts payable		$32,980
2	October 12	Inventory	$580
		Cash		$580
3	October 31	Accounts Payable	$32,980
		Interest expense                [Purchase discount lost = $34,000 x 3%]	$1,020
		Cash		$34,000
4	October 31	Accounts receivable	$29,600
		Sales revenue		$29,600
5	October 31	Cost of goods sold	$19,200
		Inventory		$19,200
6	October 31	No journal entry required

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2. Jounrnal entries under periodic inventory system:
No.	Date	General Journal	Debit	Credit
1	October 12	Purchases             [Refer working note]	$32,980
		Accounts payable		$32,980
2	October 12	Freight - In	$580
		Cash		$580
3	October 31	Accounts Payable	$32,980
		Interest expense                [Purchase discount lost = $34,000 x 3%]	$1,020
		Cash		$34,000
4	October 31	Accounts receivable	$29,600
		Sales revenue		$29,600
5	October 31	No journal entry required                          [becasue of periodic inventory system]
6	October 31	Inventory (ending)	$37,360
		Cost of Goods sold	$19,200
		Inventory (beginning)		$23,000
		Purchases		$32,980
		Freight - In		$580