Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
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Chapter 5, Problem 8E

1.

To determine

Prepare journal entries to record the transactions of Company S during the month of May using perpetual inventory system.

1.

Expert Solution
Check Mark

Explanation of Solution

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Record the journal entry for inventory purchased:

DateAccount Title and ExplanationPost Ref.Debit ($)Credit ($)
May 11Merchandise Inventory 40,000 
 Accounts Payable  40,000
 (To record purchases of inventory on account)   

Table (1)

Description:

  • Merchandise inventory is an asset and it is increased by $40,000. Therefore, debit merchandise inventory account with $40,000.
  • Accounts payable is a liability and it is increased by $40,000. Therefore, credit accounts payable account with $40,000.

Record the journal entry for payment of shipping charges:

DateAccount Title and ExplanationPost Ref.Debit ($)Credit ($)
May 11Merchandise Inventory 345 
 Cash  345
 (To record the shipping charges on purchases of inventories)   

Table (2)

Description:

  • Merchandise inventory is an asset and it is increased by $345. Therefore, debit merchandise inventory account with $345.
  • Cash is an asset and it is decreased by $345. Therefore, credit cash account with $345.

Record the journal entry for purchase returned:

DateAccount Title and ExplanationPost Ref.

Debit

($)

Credit

($)

May 12Accounts Payable 1,400 
 Merchandise Inventory  1,400
 (To record the purchases return)   

Table (3)

Description:

  • Accounts payable is a liability and it is decreased by $1,400. Therefore, debit accounts payable account with $1,400.
  • Merchandise inventory is an asset and it is decreased by $1,400. Therefore, credit inventory account with $1,400.

Record the journal entry for payment of due amount:

DateAccount Title and ExplanationPost Ref.

Debit

($)

Credit

($)

May 20Accounts Payable 38,600 (1) 
        Merchandise Inventory  1,158 (2)
        Cash  37,442 (3)
 (To record paying cash on purchases after discounts and returns)   

Table (4)

Description:

  • Accounts payable is a liability and it is decreased by $38,600. Therefore, debit accounts payable account with $38,600.
  • Merchandise inventory is an asset and it is decreased by $1,158. Therefore, credit merchandise inventory account with $1,158.
  • Cash is an asset and it is decreased by $37,442. Therefore, credit cash account with $37,442.

Working notes:

Calculate the amount of net accounts payable.

Inventory = $40,000

Purchase returns = $1,400

Net accounts payable = Inventory – Purchase returns=$40,000$1,400=$38,600 (1)

Calculate the amount of purchase discount.

Net accounts payable = $38,600 (1)

Discount percentage = 3%

Purchase discount = $38,600 × 3100 = $1,158 (2)

Calculate the amount of cash paid.

Net accounts payable = $38,600 (1)

Purchase discount = $1,158 (2)

Cash paid = Accounts payable, net – Purchase discount= $38,600 – $1,158= $37,442 (3)

2.

To determine

Prepare journal entries to record the transactions of Company T during the month of May using perpetual inventory system.

2.

Expert Solution
Check Mark

Explanation of Solution

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Record the journal entry for merchandise sold:

DateAccount Title and Explanation

Debit

($)

Credit

($)

May 11Accounts Receivable40,000 
 Sales Revenue 40,000
 (To record merchandise sales on account)  
    
 Cost of goods sold30,000 
       Merchandise Inventory 30,000
 (To record cost of goods sold)  

Table (5)

Description:

  • Accounts Receivable is an asset and it is increased by $40,000. Therefore, debit account receivable with $40,000.
  • Sales revenue is revenue and it increases the value of equity by $40,000. Therefore, credit sales revenue with $40,000.
  • Cost of goods sold is an expense account and it decreases the value of equity by $30,000. Therefore, debit cost of goods sold account with $30,000.
  • Merchandise inventory is an asset and it is decreased by $30,000. Therefore, credit inventory account with $30,000.

Record the journal entry for sales return:

DateAccount Title and Explanation

Debit

($)

Credit

($)

May 12Sales Returns and Allowance1,400 
 Accounts Receivable 1,400
 (To record the sales return)  
    
 Merchandise Inventory800 
      Cost of goods sold 800
 (To record the reversal of cost of goods sold on sales return)  

Table (6)

Description:

  • Sales return and allowance is an expense account and it decreases the value of equity by $1,400. Therefore, debit sales returns and allowances account with $1,400.
  • Accounts Receivable is an asset and it is decreased by $1,400. Therefore, credit account receivable with $1,400.
  • Inventory is an asset and it is increased by $800. Therefore, debit inventory account with $800.
  • Cost of goods sold is an expense account and it increases the value of equity by $800. Therefore, credit cost of goods sold account with $800.

Record the journal entry for receipt of payment:

DateAccount Title and Explanation

Debit

($)

Credit

($)

May 20Cash37,442 (6) 
 Sales Discounts1,158 (5) 
       Accounts Receivable 38,600 (4)
 (To record receiving cash on sales after discounts and returns)  

Table (7)

Description:

  • Cash is an asset and it is increased by $37,442. Therefore, debit cash account with $37,442.
  • Sales Discounts is a contra revenue account and would have a debit balance. Therefore, debit sales discounts account with $1,158.
  • Accounts Receivable is an asset and it is decreased by $38,600. Therefore, credit account receivable with $38,600.

Working notes:

Calculate the amount of accounts receivable.

Accounts receivable = $40,000

Sales returns = $1,400

Netaccounts receivable} = {Accounts receivable due to sales – Sales return}= $40,000 – $1,400= $38,600 (4)

Calculate the amount of sales discount.

Net accounts receivable = $38,600 (4)

Discount percentage = 3%

Sales discount = $38,600 × 3100 = $1,158 (5)

Calculate the amount of cash received.

Net accounts receivable = $38,600 (4)

Sales discount = $1,158 (5)

Cash received = Accounts receivable, net – Sales discount= $38,600 – $1,158= $37,442 (6)

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Chapter 5 Solutions

Principles of Financial Accounting.

Ch. 5 - Distinguish between cash discounts and trade...Ch. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - What is the difference between the single-step and...Ch. 5 - APPLE Refer to the balance sheet and income...Ch. 5 - Prob. 12DQCh. 5 - Prob. 13DQCh. 5 - Prob. 14DQCh. 5 - Prob. 15DQCh. 5 - Prob. 1QSCh. 5 - Prob. 2QSCh. 5 - Prob. 3QSCh. 5 - Prob. 4QSCh. 5 - Prob. 5QSCh. 5 - Prob. 6QSCh. 5 - Prob. 7QSCh. 5 - Accounting for shrinkageperpetual system P3 Nix'It...Ch. 5 - Closing entries P3 Refer to QS 4-9 and prepare...Ch. 5 - Prob. 10QSCh. 5 - Prob. 11QSCh. 5 - Prob. 12QSCh. 5 - Prob. 13QSCh. 5 - Prob. 14QSCh. 5 - Contrasting periodic and perpetual systems...Ch. 5 - Prob. 16QSCh. 5 - Prob. 17QSCh. 5 - Prob. 18QSCh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Prob. 13ECh. 5 - Exercise 5-13 A retail company recently completed...Ch. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19ECh. 5 - Prob. 20ECh. 5 - Preparing journal entries for merchandising...Ch. 5 - Prob. 2APCh. 5 - Prob. 3APCh. 5 - Prob. 4APCh. 5 - Prob. 5APCh. 5 - Prob. 6APCh. 5 - Preparing journal entries for merchandising...Ch. 5 - Prob. 2BPCh. 5 - Prob. 3BPCh. 5 - Prob. 4BPCh. 5 - Prob. 5BPCh. 5 - Prob. 6BPCh. 5 - Prob. 5SPCh. 5 - Prob. 1BTNCh. 5 - Prob. 2BTNCh. 5 - Prob. 3BTNCh. 5 - You are the financial officer for Music Plus, a...Ch. 5 - Prob. 5BTNCh. 5 - Prob. 7BTNCh. 5 - Prob. 9BTN
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