Question

Problem 2 (Flow of an accounting for the merchandiser) High Plains Sales Corporation experienced the following events during the current year: 1. Incurred marketing costs of P197,000. 2. Purchased P971,000 of merchandise. 3. Paid P26,000 for transportation-in costs. 4. Incurred P400,000 of administrative costs 5. Took a periodic inventory on December 31 and learned that goods witha cost of P297,000 were on hand. This compared with a beginning inventory of P314,000 on January 1 6. Sales revenue during the year was P1,850,000. All costs incurred were debited to the appropriate account and credited to Accounts Payable. All sales were on credit. Required 1. Prepare journal entries to reflect these events. 2. Prepare T-accounts to show these events. 3. Prepare an income statement based on these data.

Answer 1

Date	Account Titles and Explanation	Debit	Cedit
1)	Marketing Expenses	$197,000.00
	Accounts Payable		$197,000.00
2)	Purchases	$971,000.00
	Accounts Payable		$971,000.00
3)	Freight in	$26,000.00
	Accounts Payable		$26,000.00
4)	Administrative Expense	$400,000.00
	Accounts Payable		$400,000.00
5)
	Beginning inventory	$314,000.00
	Plus: Net purchases	$971,000.00
	Goods available for sale	$1,285,000.00
	Less: Ending inventory	-$297,000.00
	Cost of goods sold	$988,000.00
6)	Accounts Receivables	$1,850,000.00
	Sales Revenue		$1,850,000.00
	Cost of Good Sold	$988,000.00
	Merchandise inventory		$988,000.00