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Chapter 5: Q14SE (page 298)

Consider the following transactions for Garman Packing Supplies:

Apr. 10 Garman Packing Supplies buys \(175,000 worth of merchandise inventory on account with credit terms of 1/10, n/30.

12 Garman returns \)15,200 of the merchandise to the vendor due to damage during shipment.

19 Garman paid the amount due, less the return and discount.

Requirements

1. Journalize the purchase transactions assuming Garman Packing Supplies uses the periodic inventory system. Explanations are not required.

2. What is the amount of net purchases?

Short Answer

Expert verified

The net purchase of the company is$158,202.

Step by step solution

01

Meaning of Periodic Inventory System

There are two inventory systems available for the business entities inaccounting, which they can use according to their business structure. A periodic inventory system requires less effort and skills because it updatesinventory accounts periodically.

02

Preparation of journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

Apr 10

Purchases

175,000

Accounts payable

175,000

Apr 12

Accounts payable

15,200

Purchase return

15,200

Apr 19

Accounts payable (175000-15200)

159,800

Cash

158,202

Discount received (159800*1%)

1,598

03

Computation of net purchases

Particulars

Amounts ($)

Purchases

175,000

Less: Purchase returns

(15,200)

Less: Discount

(1,598)

Net purchases

158,202

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Most popular questions from this chapter

Describe the operating cycle of a merchandiser.

Journalize the following sales transactions for Antique Mall. Explanations are not required. The company estimates sales returns at the end of each month.

Jan. 4 Sold \(16,000 of antiques on the account; credit terms are n/30. The cost of goods is \)8,000.

8 Received a \(300 sales return on damaged goods from the customer. The cost of goods damaged is \)150.

13 Antique Mall received payment from the customer on the amount due from Jan. 4, less the return.

20 Sold \(4,900 of antiques on the account; credit terms are 1/10, n/45, FOB destination. The cost of goods is \)2,450.

20 Antique Mall paid $70 on freight out.

29 Received payment from the customer on the amount due from Jan. 20, less the discount.

What are the four steps involved in the closing process for a merchandising company?

Taylor Department Store uses a periodic inventory system. The adjusted trial balance of Taylor Department Store at December 31, 2018, follows:

TAYLOR DEPARTMENT STORE

Adjusted Trial Balance

December 31, 2018

Balance

Account Title Debit Credit

Cash \(7,900

Accounts Receivable 85,300

Merchandise Inventory (beginning) 37,600

Office Supplies 300

Furniture 83,000

Accumulated Depreciation-Furniture \)18,500

Accounts Payable 28,500

Salaries Payable 2,900

Unearned Revenue 14,500

Notes Payable, long-term 32,000

Common Stock 20,000

Retained Earnings 45,400

Dividends 89,000

Sales Revenue 380,800

Purchases 284,000

Purchase Returns and Allowances 110,000

Purchase Discounts 7,000

Freight-In 100

Selling Expense 42,900

Administrative Expense 26,300

Interest Expense 3,200

Total \(659,600 \)659,600

Requirements

1. Prepare Taylor Department Store鈥檚 multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,700.

2. Journalize Taylor Department Store鈥檚 closing entries.

Journalize the following sales transactions for Sierra Tractors. Explanations are not required.

June 5 Sierra sold \(20,000 of inventory on account, credit terms are 4/10, n/30. Cost of goods is \)10,000. Sierra uses the gross method to record sales revenue.

12 Sierra receives payment from the customer on the amount due, less the discount.
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