Question

problem one

please note the following

- incorporate GST into this problem. These figures include GST: $580,000 and $28,000. The $364,8000 is net of GST

- Round to 2 decimal places

- omit narrations and referencing

1. On December 3, Li sold HK$580,000 of merchandise on account to South China Ltd. terms 1/10, n/30, FOB shipping point. The cost of the merchandise sold was HK$364,800.

2. On December 8, South China was granted an allowance of HK$28,000 for merchandise purchased on December 3.

3. On December 13, Li received the balance due from South China.

a) Prepare the journal entries to record the three transactions on the books of Li, using the perpetual inventory system, in the table provided.

b) Prepare the journal entries to record the three transactions on the books of South China Ltd, using the perpetual inventory system, first under the gross purchases method, then under the net purchases method, in the table provided.

c) In a) and b), you recorded South China’s payment within the discount period. Now assume that South China paid after the discount period. Prepare the journal entries for both Li and South China under this assumption, in the table provided. For South China, do so under both the gross and net purchase methods.

d) The account Discounts Lost exists only under the net purchase method. If this account has a balance at the end of the accounting period, identify which financial statement and where on that financial statement the account should be found. Explain why in detail.

Answer 1

a) 1) South China Ltd A/C Dr. $ 5,80,000

To Sales A/C $ 5,80,000

2) Cost of Goods Sold Dr. $ 3,64,800

To Inventory A/C $ 3,64,800