Question

Required information Exercise 4-12A Effect of purchase returns and allowances and freight costs on the journal, ledger, and financial statements: Perpetual system LO 4-2, 4-4. 4-6 [The following information applies to the questions displayed below) The trial balance for Terry's Auto Shop as of January 1, Year 2, follows: Account Titles Debit Credit $16,000 Inventory 8,000 Common Stock $20,000 Retained Earnings Total Cash 4,000 $24,000 $24,000 The following events affected the company during the Year 2 accounting period: 1. Purchased merchandise on account that cost $15,000. 2. The goods in Event 1 were purchased FOB shipping point with freight cost of $800 cash. 3. Returned $2,600 of damaged merchandise for credit on account 4. Agreed to keep other damaged merchandise for which the company received an $1100 allowance 5. Sold merchandise that cost $15,000 for $31000 cash. 6. Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $500 cash 7. Paid $8,000 on the merchandise purchased in Event 1. 8. Pald $9,000 cash for operating expenses.

Answer 1

Record journal entry as given below:
Event	General Journal	Debit	Credit
1	Merchandise inventory	$15,000
	Accounts payable		$15,000
	(To record merchandise inventory purchased)
2	Merchandise inventory	$800
	Cash		$800
	(To record freight charges paid)
3	Accounts payable	$2,600
	Merchandise inventory		$2,600
	(To record inventory returned)
4	Accounts payable	$1,100
	Merchandise inventory		$1,100
	(To record allowance received)
5	Cash	$31,000
	Sales revenue		$31,000
	(To record sales revenue)
	Cost of goods sold	$15,000
	Merchandise inventory		$15,000
	(To record cost of goods sold)
6	Transportation-out	$500
	Cash		$500
	(To record freight outward charges paid on sale)
7	Accounts payable	$8,000
	Cash		$8,000
	(To record cash paid for purchase)
9	Operating expenses	$9,000
	Cash		$9,000
	(To record cash paid for expenses)