Question

Beginning inventory $ 32,000 Inventory purchases (on account) 162,000 Freight charges on purchases (paid in cash) 17,000 Inventory returned to suppliers (for credit) 19,000 Ending inventory 37,000 Sales (on account) 257,000 Cost of inventory sold 155,000 Required: Applying both a perpetual and a periodic inventory system, prepare the journal entries that summarize the transactions that created these balances. Include all end-of-period adjusting entries indicated.

Answer 1

Answer:

When Inventory is purchased on account

Merchandise Inventory $162,000 (debit)

Accounts Payable $162,000 (credit)

When freight charges are paid in cash

Freight Charges $17,000 (debit)

Cash $17,000  (credit)

When Inventory is returned to suppliers

Accounts Payable $19,000 (debit)

Merchandise Inventory $19,000  (credit)

When inventory is sold on account

Account Receivables $257,000 (debit)

Cost of Sales $155,000 (debit)

Sales Revenue $257,000 (credit)

Merchandise Inventory $155,000 (credit)

Explanation:

When Inventory is purchased on account

Recognize the assets of Inventory as well as the liability for Suppliers owed

When freight charges are paid in cash

Recognize the freight expenses and de-recognize assets of cash

When Inventory is returned to suppliers

De-recognize the liability of suppliers owed as well as inventory returned

When inventory is sold on account

Recognize the revenue and cost resulting from sale.