Question

Part 1: Prepare ABC Co.'s joumal entries for each of the following transactions. Assume that a perpetual inventory method is used. Recording Purchases of Merchandise a. ABC Co. purchases $16,000 of inventory on account, terms 3/10 net 30 from Sampson Company. b. ABC Co. retums $1,800 of inventory to Sampson from the initial purchase C. ABC Co. pays the balance owed to Sampson Company, taking the discount. Recording Sales of Merchandise (new scenario) d. ABC Co. sells merchandise on account for $7,600 (terms 2/10 net 30) to Blue Co. The merchandise had cost ABC Co. $3,750 e. Blue Co. retums $500 of the merchandise to ABC Co. Assume this retumed merchandise had cost ABC Co. $300. f. Blue Co. pays ABC Co, the balance owed within 10 days of the sale.

Answer 1

	Journal entries - purchase of merchandise	Dr. ($)	Cr. ($)
a	inventory	16000
	To accounts payable		16000
	(being purchase of inventory)
b	accounts payable	1800
	To inventory		1800
	(being purchase returns made)
c	accounts payable (16000-1800)	14200
	To inventory (14200*0.03)		426
	To cash (14200-426)		13774
	(being payment after discount for purchases made)

	Journal entries - purchase of merchandise	Dr. ($)	Cr. ($)
a	accounts receivable	7600
	To sales		7600
	(being sales made on account)
a	cost of goods sold	3750
	To inventory		3750
	(being cost of inventory sold recorded)
b	sales	500
	To accounts receivable		500
	(being sales returned recorded)
b	inventory	300
	To cost of goods sold		300
	(being the cost of good returned recorded)
c	cash (7100-142)	6958
	inventory (discount 2%*7100)	142
	To accounts receivable (7600-500)		7100
	(being payment received from customer for inventory after discount)

total units available for sale (beginning + purchases)	60000
total units sold during the year	42000
total units in ending inventory (units available - units sold)	18000
calculation of ending inventory and cost of goods solds are as follows:
FIFO	amounts in $
cost of ending inventory
most recent cost; 10/31/16
(15000 units @ $15.75)	236250
add: next most recent cost; (6/15/16)
(3000 units @ $15.50)	46500
total cost of 18000 units in inventory on year end i.e, ending inventory	282750
computation of total cost of goods sold
Cost of goods sold = [Cost of units in beginning inventory + Cost of units purchased during the period] – Cost of units in ending inventory
= Cost of units available for sale – Cost of units in ending inventory
total cost of units available for sale	924950
less: cost of units in ending inventory	-282750
total cost of 42000 units sold during the year	642200
LIFO
cost of ending inventory 18000
earliest cost; (1/1/2016)beginning
(12000 units * $15.10)	181200
next earliest cost; (2/2/2016)
(6000 units * $15.25)	91500
total cost of 18000 units in inventory on year end i.e, ending inventory	272700
Cost of goods sold = [Cost of units in beginning inventory + Cost of units purchased during the period] – Cost of units in ending inventory
= Cost of units available for sale – Cost of units in ending inventory
total cost of units available for sale	924950
less:cost of units in ending inventory	-272700
total cost of 42000 units sold during the year	652250
Weighted average cost
total units available for sale	60000
total cost	924950
Weighted average unit cost (total cost/units available for sale)	15.41583333
units in ending inventory	18000
cost of ending inventory (ending inventory unit*average unit cost)	277485
units sold	42000
cost of goods sold	647465

	ending inventory ($)	cost of goods sold ($)
FIFO	282750	642200
LIFO	272700	652250
weighted average cost	277485	647465