Question

James Company began the month of October with inventory of $15,000. The following inventory transactions occurred during the month:The company purchased merchandise on account for $22,000 on October 12, 2018. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $500 were paid in cash.On October 31, James paid for the merchandise purchased on October 12.During October, merchandise costing $18,000 was sold on account for $28,000.It was determined that inventory on hand at the end of October cost $19,060.Required:1. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold.2. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions.

Answer 1

Answer:

(a)

Under net method:

Purchase discount = Gross purchases × Purchase discount rate

                               = 22,000 × 2%

                               = $440

Net purchases = Gross purchases - Purchase discount

                        =  $22,000 - $440

                        = $21,560

The journal entry under periodic inventory system is as follows:

OCT 12

Freight-in A/c     Dr.       $500

To cash                                      $500

(To record freight-in charges)

OCT 31

Accounts payable  A/c     Dr.       $21,560

Interest expense A/c        Dr.       $440

To cash                                                      $22,000

(To record payment made to suppliers)

OCT 16

Accounts receivable  A/c     Dr.       $28,000

To sales revenue                                                     $28,000

(To record sales on account)

The journal entry under perpetual inventory system is as follows:

OCT 31

Merchandising Inventory (ending) A/c      Dr.  19,060

Cost of goods sold A/c                               Dr.  18,000

To beginning inventory                                                    15,000

To purchases                                                                     21,560

To freight-in                                                                         500

(To record cost of goods sold)

Oct 12

Merchandising Inventory     Dr.       $21,560

To Accounts payable                                     $21,560

(To record purchase of inventory on account)

Merchandising Inventory     Dr.       $500

To cash                                                         $500

(To record purchase of inventory on account)

Year-end adjusting entry : No journal entry is required.