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Chapter 5: Q2SE (page 295)

Consider the following transactions for Toys and More:

May 8 Toys and More buys \(113,300 worth of MegoBlock toys on account with credit terms of 2/10, n/60.

12 Toys and More returns \)11,250 of the merchandise to MegoBlock due to damage during shipment.

15 Toys and More paid the amount due, less the return and discount.

Requirements

1. Journalize the purchase transactions. Explanations are not required.

2. In the final analysis, how much did the inventory cost Toys and More?

Short Answer

Expert verified

Answer

The cost of inventory is$100,009.

Step by step solution

01

Meaning of Purchases

In accounting, the term purchases denote the acquisition of goods to resell them to generate revenues. The acquisition of goods is either done on cash or credit and recorded differently underperiodic and perpetual inventory systems.

02

Journal entries for purchase transactions

Date

Accounts and Explanation

Debit ($)

Credit ($)

May 8

Merchandise inventory

113,300

Accounts payable

113,300

May 12

Accounts payable

11,250

Merchandise inventory

11,250

May 15

Accounts payable (113,300-11,250)

102,050

Cash (102,050-2041)

100,009

Merchandise inventory (102,050*2%)

2,041

03

Computation of inventory cost  

Inventorycost=Valueofinventory-Returns-Discount=$113,300-$11,250-$2,041=$100,009

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Most popular questions from this chapter

Describe the operating cycle of a merchandiser.

Journalize the following transactions that occurred in November 2018 for May鈥檚 Adventure Park. Assume May鈥檚 uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

Nov. 4 Purchased merchandise inventory on account from Valera Company, \(8,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)160 on November 4 purchase.

8 Returned half the inventory purchased on November 4 from Valera Company.

10 Sold merchandise inventory for cash, \(1,700. Cost of goods, \)680. FOB destination.

11 Sold merchandise inventory to Garrison Corporation, \(10,300, on account, terms of 3/10, n/EOM. Cost of goods, \)5,150. FOB shipping point.

12 Paid freight bill of \(30 on November 10 sale.

13 Sold merchandise inventory to Cain Company, \)9,000, on account, terms of 1/10, n/45. Cost of goods, \(4,500. FOB shipping point.

14 Paid the amount owed on account from November 4, less return and discount.

18 Purchased inventory of \)3,700 on account from Regan Corporation. Payment terms were 2/10, n/30, FOB destination.

20 Received cash from Garrison Corporation, less discount.

26 Paid amount owed on account from November 18, less discount.

28 Received cash from Cain Company.

29 Purchased inventory from Sanders Corporation for cash, \(12,000, FOB shipping point. Freight in paid to shipping company, \)200.

Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:

Cash \( 2,900 Cost of Goods Sold \) 18,700

Selling Expenses 1,400 Equipment, net 9,500

Accounts Payable 4,300 Accrued Liabilities 1,800

Common Stock 4,365 Net Sales Revenue 29,200

Notes Payable, long-term 500 Accounts Receivable 3,200

Merchandise Inventory 1,100 Interest Expense 65

Administrative Expenses 3,300

Prepare Camilia Communication鈥檚 multi-step income statement for the year ended July 31, 2018.

Suppose Piranha.com sells 3,500 books on account for \(17 each (cost of these books is \)35,700) on October 10, 2018 to The Textbook Store. One hundred of these books (cost $1,020) were damaged in shipment, so Piranha.com later received the damaged goods from The Textbook Store as sales returns on October 13, 2018.

Requirements

1. Journalize The Textbook Store鈥檚 October 2018 transactions.

2. Journalize Piranha.com鈥檚 October 2018 transactions. The company estimates sales returns at the end of each month.

Journalize the following transactions that occurred in September 2018 for Aquamarines. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Aquamarines estimates sales returns at the end of each month.

Sep. 3 Purchased merchandise inventory on account from Sharpner Wholesalers, \(5,500. Terms 2/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)85 on September 3 purchase.

4 Purchased merchandise inventory for cash of \(1,600.

6 Returned \)1,300 of inventory from the September 3 purchase.

8 Sold merchandise inventory to Herman Company, \(5,700, on account. Terms 2/15, n/35. Cost of goods, \)2,565.

9 Purchased merchandise inventory on account from Tucker Wholesalers, \(6,000. Terms 3/10, n/30, FOB destination.

10 Made payment to Sharpner Wholesalers for goods purchased on September 3, less return and discount.

12 Received payment from Herman Company, less discount.

13 After negotiations, I received a \)500 allowance from Tucker Wholesalers.

15 Sold merchandise inventory to Jerome Company, \(2,800, on account. Terms n/EOM. Cost of goods, \)1,200.

22 Made payment, less allowance, to Tucker Wholesalers for goods purchased on September 9.

23 Jerome Company returned \(200 of the merchandise sold on September 15. Cost of goods, \)80.

25 Sold merchandise inventory to Small for \(1,800 on account that cost \)738. Terms of 3/10, n/30 was offered, FOB shipping point. As a courtesy to Small, $40 of freight was added to the invoice, for which Aquamarines paid cash.

29 Received payment from Small, less discount.

30 Received payment from Jerome Company, less return.
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