Question

Exercise 4-18A Recording sales, purchases, shipping, and returns: buyer and seller-periodic LO P5

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions.
  

May		11		Sydney accepts delivery of $32,000 of merchandise it purchases for resale from Troy: invoice dated May 11; terms 3/10, n/90; FOB shipping point. The goods cost Troy $21,440. Sydney pays $470 cash to Express Shipping for delivery charges on the merchandise.
		12		Sydney returns $1,900 of the $32,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $1,273.
		20		Sydney pays Troy for the amount owed. Troy receives the cash immediately.

  
Assume that both buyer and seller use a periodic inventory system and the gross method.

1. Prepare journal entries that Sydney Retailing records for these transactions.
2. Prepare journal entries that Troy Wholesalers records for these transactions.

Prepare journal entries that Sydney Retailing records for these transactions.

• 1

  Sydney accepts delivery of $32,000 of merchandise it purchases for resale from Troy: invoice dated May 11; terms 3/10, n/90; FOB shipping point. The goods cost Troy $21,440.

• 2

  Record the transportation cost paid to express shipping.

• 3

  Sydney returns $1,900 of the $32,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $1,273.

• 4

  Sydney pays Troy for the amount owed. Troy receives the cash immediately.

Prepare journal entries that Troy Wholesalers records for these transactions.

• 1

  Sydney accepts delivery of $32,000 of merchandise it purchases for resale from Troy: invoice dated May 11, with terms of 3/10, n/90, FOB shipping point.

• 2

  Sydney returns $1,900 of the $32,000 of goods to Troy.

• 3

  Sydney mails a check to Troy Corporation for the amount owed. Troy receives the cash immediately.

Answer 1

Periodic Inventory System: In this system, the cost of sales and inventory are determined as the end of the accounting period.

Gross Method of accounting : In this method the invoice (i.e. either sales or purchase) is accounted at full value without giving the effect of any cash discount. The cash discount is accounted once the payment is made with in the credit term period as applicable.