Question

Question 2: 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.

P5-12A Data for Norlan Inc. are presented in P5–3A.

Instructions

(a) Record the September transactions on Norlan’s books, assuming it uses a periodic inventory system instead of a perpetual inventory system.

(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

P5-3A

Date	Account Titles	Debit	Credit
Sep-02	Equipment	$                65,000
	Accounts Payable		$                65,000
	(Equipment purchased on account)
Sep-03	Equipment	$                      950
	Cash		$                      950
	(Payment of freight on equipment)
Sep-04	Supplies	$                  4,000
	Cash		$                  4,000
	(Supplies purchased for cash)
Sep-06	Inventory	$                65,000
	Accounts Payable		$                65,000
	(Payment of inventory on account)
Sep-07	Inventory	$                  1,600
	Cash		$                  1,600
	(Paid freight in cash)
Sep-08	Accounts Payable	$                  5,000
	Inventory		$                  5,000
	(Returnd damaged goods)
Sep-09	Accounts Receivable	$                20,000
	Sales Revenue		$                20,000
	(Sales made on account)
	Cost of Goods Sold	$                15,000
	Inventory		$                15,000
	(Cost of goods sold recorded)
Sep-10	Delivery Expense	$                      375
	Cash		$                      375
	(Paid freight on FOB Destination sale)
Sep-17	Cash	$                19,600		=20000*98%
	Sales Discount	$                      400		=20000*2%
	Accounts receivable		$                20,000
	(Cash collected net of 2% discount)
Sep-20	Accounts Payable	$                60,000		=65000-5000
	Cash		$                59,400	=60000*99%
	Inventory		$                      600	=60000*1%
	(Paid net of 1% discount)
Sep-21	Inventory	$                  6,000
	Cash		$                  6,000
	(Purchased inventory for cash)
Sep-22	Accounts Receivable	$                27,000
	Sales Revenue		$                27,000
	(Sales made on account)
	Cost of Goods Sold	$                20,000
	Inventory		$                20,000
	(Cost of goods sold recorded)
Sep-23	No entry
Sep-28	Sales Returns and allowances	$                10,000
	Accounts receivable		$                10,000
	(Sales returns)
	Inventory	$                  7,500
	Cost of Goods Sold		$                  7,500
	(Inventory added back)

Part 5-12A

Date	Account Titles	Debit	Credit
Sep-02	Equipment	$                65,000
	Accounts Payable		$                65,000
	(Equipment purchased on account)
Sep-03	Equipment	$                      950
	Cash		$                      950
	(Payment of freight on equipment)
Sep-04	Supplies	$                  4,000
	Cash		$                  4,000
	(Supplies purchased for cash)
Sep-06	Purchases	$                65,000
	Accounts Payable		$                65,000
	(Payment of inventory on account)
Sep-07	Freight In	$                  1,600
	Cash		$                  1,600
	(Paid freight in cash)
Sep-08	Accounts Payable	$                  5,000
	Purchase Returns and allowances		$                  5,000
	(Returnd damaged goods)
Sep-09	Accounts Receivable	$                20,000
	Sales Revenue		$                20,000
	(Sales made on account)
Sep-10	Delivery Expense	$                      375
	Cash		$                      375
	(Paid freight on FOB Destination sale)
Sep-17	Cash	$                19,600		=20000*98%
	Sales Discount	$                      400		=20000*2%
	Accounts receivable		$                20,000
	(Cash collected net of 2% discount)
Sep-20	Accounts Payable	$                60,000		=65000-5000
	Cash		$                59,400	=60000*99%
	Purchase Discount		$                      600	=60000*1%
	(Paid net of 1% discount)
Sep-21	Purchases	$                  6,000
	Cash		$                  6,000
	(Purchased inventory for cash)
Sep-22	Accounts Receivable	$                27,000
	Sales Revenue		$                27,000
	(Sales made on account)
Sep-23	No entry
Sep-28	Sales Returns and allowances	$                10,000
	Accounts receivable		$                10,000
	(Sales returns)

Date	Account Titles	Debit	Credit
Oct-03	Accounts Payable	$                60,000
	Cash		$                60,000

Cost of missing purchase discount = $600
In percentage = 1%/99% x 365/13 = 28.36%
Since payment is made by 13 days late from end of discount period, denominator is taken as 13 days