Question

Required information [The following information applies to the questions displayed below.) James Company began the month of October with inventory of $33,000. The following inventory transactions occurred during the month: a. The company purchased merchandise on account for $49,000 on October 12. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped fo.b. shipping point and freight charges of $680 were paid in cash. b. On October 31, James paid for the merchandise purchased on October 12. c. During October merchandise costing $20,700 was sold on account for $31,600. d. It was determined that inventory on hand at the end of October cost $61,000.

2. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. James considers purchase discounts lost as part of interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

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

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Jounrnal entries under periodic inventory system:
No.	Date	General Journal	Debit	Credit
1	October 12	Purchases             [Refer working note 1]	$48,020
		Accounts payable		$48,020
2	October 12	Freight - In	$680
		Cash		$680
3	October 31	Accounts Payable	$48,020
		Interest expense                [Purchase discount lost = $49,000 x 2%]	$980
		Cash		$49,000
4	October 31	Accounts receivable	$31,600
		Sales revenue		$31,600
5	October 31	No journal entry required                          [becasue of periodic inventory system]
6	October 31	Inventory (ending)	$61,000
		Cost of Goods sold	$20,700
		Inventory (beginning)		$33,000
		Purchases		$48,020
		Freight - In		$680

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Working Note - 1
Purchase cost of merchandise (Gross amount)             (a)	$49,000
Discount percentage                                                     (b)	2%
Discount amount                                                           (c = a x b)	$980
Purchase cost of merchandise (net puchase cost)         (a - c)	$48,020