Question

Question 1: P5-3A Presented here are selected transactions for Norlan Inc. during September of the current year. Norlan uses a perpetual inventory system.

Sept.   2	Purchased equipment on account for $65,000, terms n/30, FOB destination.
3	Freight charges of $950 were paid by the appropriate party on the September 2 purchase of equipment.
4	Purchased supplies for $4,000 cash.
6	Purchased inventory on account from Hillary Corp. at a cost of $65,000, terms 1/15, n/30, FOB shipping point.
7	Freight charges of $1,600 were paid by the appropriate party on the September 6 inventory purchase.
8	Returned damaged goods costing $5,000 that were originally purchased from Hillary on September 6. Received a credit on account.
9	Sold goods costing $15,000 to Fischer Limited for $20,000 on account, terms 2/10, n/30, FOB destination.
10	Freight charges of $375 were paid by the appropriate party on the September 9 sale of inventory.
17	Received the balance due from Fischer.
20	Paid Hillary the balance due.
21	Purchased inventory for $6,000 cash.
22	Sold inventory costing $20,000 to Kun-Tai Inc. for $27,000 on account, terms n/30, FOB shipping point.
23	Freight charges of $500 were paid by the appropriate party on the September 22 sale of inventory.
28	Kun-Tai returned goods sold for $10,000 that cost $7,500. The merchandise was restored to inventory.

Instructions

(a) Record the September transactions on Norlan’s books.

(b) Assume that Norlan did not take advantage of the 1% purchase discount offered by Hillary Corp. and paid Hillary on October 3 instead of September 20. Record the entry that Norlan would make on October 3 and determine the cost of missing this purchase discount to Norlan.

Answer 1

Journal Entries
a
Date	Particulars	Debit	Credit
		$	$
Sept.2	Equipment	65000
	Accounts payable		65000
	(Purchase of Equipment)
Sept.3	No entry in buyer books, it will be paid by seller
Sept.4	Supplies	4000
	Cash		4000
	(Purchase of supplies)
Sept.6	Inventory	65000
	Hillary Corp.(Accounts Payable)		65000
	(Purchase of Inventory)
Sept.7	Inventory	1600
	Cash		1600
	(Freight Chares paid included in inventory cost)
Sept.8	Hillary Corp.(Accounts Payable)	5000
	Inventory		5000
	(Goods return to Hillary Corp.)
Sept.9	Fischer Limited-Accounts Receivable	20000
	Sales Revenue		20000
	(Goods sales to Fischer Limited
Sept.9	Cost of Goods Sold	15000
	Inventory		15000
	(Cost of Goods Sold)
Sept.10	Freight Charges	375
	Cash		375
	(Payment of freight charges)
Sept.17	Cash (20000-19600)	19600
	Discount on Sales (20000*2/100)	400
	Fischer Limited-Accounts Receivable		20000
	(Payment received from Fischer)
Sept.20	Hillary Corp. (Accounts payable) ($65,000 - $5,000)	60000
	Inventory ($60,000*1/100)		600
	Cash ($60,000 - $600)		59400
	(Paid to Hillary corp.)
Sept.21	Inventory	6000
	Cash		6000
	(Purchase of Inventory)
Sept.22	Kun-Tal Inc-Accounts Receivable.	27000
	Sales Revenue		27000
	(Sales of Goods)
Sept.22	Cost of Goods Sold	20000
	Inventory		20000
	(Cost of Goods Sold)
Sept.23	No entry in buyer books, it will be paid by buyer
Sept.28	Sales Returns and Allowances	10000
	Kun-Tal Inc-Accounts Receivable.		10000
	(return of Goods)
Sept.28	Inventory	7500
	Cost of Goods Sold		7500
	(Cost of Goods Sold of return inventory)
b
Oct.3	Hillary Corp. (Accounts payable) ($65,000 - $5,000)	60000
	Cash		60000
	(Payment of Hillary on Oct'3)
	$600 purchase discount missed by Norlan