Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Chapter 6, Problem 66BPSB

Recording Sale and Purchase Transactions

Jordan Footwear sells athletic shoes and uses the perpetual inventory system. During June, Jordan engaged in the following transactions its first month of operations:

a. On June1, Jordan purchased, on credit, 100 pairs of basketball shoes and 210 pairs of running shoes with credit terms of 2/10, n/30. The basketball shoes were purchased at a cost of $85 per pair, and the running shoes were purchased at a cost of $60 per pair. Jordan paid Mole Trucking $310 cash to transport the shoes from the manufacturer to Jordan’s warehouse, shipping terms were F.O.B. shipping point, and the items were shipped on June 1 and arrived on June 4.

b. On June 2, Jordan purchased 88 pairs of cross-training shoes for cash. The shoes cost Jordan $65 per pair.

c. On June 6, Jordan purchased 125 pairs of tennis shoes on credit. Credit terms were 2/10, n/25. The shoes were purchased at a cost of $45 per pair.

d. On June 10, Jordan paid for the purchase of the basketball shoes and the running shoes in Transaction a.

e. On June 12, Jordan determined that $585 of the tennis shoes were defective. Jordan returned the defective merchandise to the manufacturer.

f. On June 18, Jordan sold 50 pairs of basketball shoes at $116 per pair, 92 pairs of running shoes for S85 per pair, 21 pairs of cross-training shoes for $100 per pair, and 48 pairs of tennis shoes for $68 per pair. All sales were for cash. The cost of the merchandise sold was $13,295. No sales returns are expected.

g. On June 21, customers returned 10 pairs of the basketball shoes purchased on June 18. The cost of the merchandise returned was $850.

h. On June 23, Jordan sold another 20 pairs of basketball shoes, on credit, for $116 per pair and 15 pairs of cross-training shoes for $100 cash per pair. The cost of the merchandise sold was $2,675.

i. On June 30, Jordan paid for the June 6 purchase of tennis shoes minus the return on June 12.

j. On June 30, Jordan purchased 60 pairs of basketball shoes, on credit, for S85 each. The shoes were shipped F.O.B. destination and arrived at Jordan on July 3.

Required:

1. Prepare the journal entries to record the sale and purchase transactions for Jordan during June 2019.

2. Assuming operating expenses of $5,300 and income taxes of $365, prepare Jordan’s income statement for June 2019.

Expert Solution
Check Mark
To determine

(a)

Recording the transaction:

The transactions of sales and purchases are recorded at the time of sale and purchase of goods by debiting one account and crediting the other account.

The journal entries to record the sale and purchase for Jordan Footwear.

Answer to Problem 66BPSB

The journal entries are as follows:

a.

Date Particular Debit $ Credit $
June 1 Inventory account(100 units×$85)+(210 units×$60) 21100
Accounts Payable 21100
(To record purchase on account)
Date Particular Debit $ Credit $
June 1 Inventory 310
Cash 310
(To record transportation cost)

Goods are purchased on FOB basis. The buyer will pay the transportation cost.

b. Inventory Purchased on cash basis, cash account credit and inventory account debit.

Date Particular Debit $ Credit $
June 2 Inventory(88 units×$65) 5720
Cash 5720
(To record purchase entry)

c. Inventory Purchased on credit basis, account payable is credit and inventory account debit.

Date Particular Debit $ Credit $
June 6 Inventory (125 units×$45) 5625
Accounts payable 5625
(To record purchase)

d. Payment made with discount at 2% on cash basis, cash and discount account credit and payable account debit.

Date Particular Debit $ Credit $
June 10 Accounts Payable 21100
Purchase discount (21100×2%) 422
Cash 20678
(To record payment with discount)

e. Goods return, inventory account credit and accounts payable debit to reduce the effect of return.

Date Particular Debit $ Credit $
June 12 Accounts Payable 585
Inventory 585
(To record purchase return)

f. Sales made on cash basis. The cash account is debit and revenue account credit.

Date Particular Debit $ Credit $
June 18 Cash 18984
Sales Revenue 18984
(To record cash sales)

Cost of goods sold booked with inventory.

Date Particular Debit $ Credit $
June 18 Cost of Goods sold 13295
Inventory 13295
(To record cost of goods sold)

g. Sales return booked with cash payment.

Date Particular Debit $ Credit $
June 21 Sales Return (10 pairs×$116) 1160
Cash 1160
(To record sales return of goods)

Cost of goods sold adjusted with sales return.

Date Particular Debit $ Credit $
June 21 Inventory 850
Cost of Goods sold 850
(To record cost of goods sold return)

h. Sales made on cash and credit basis, cash and account receivable account debit and sales account credit.

Date Particular Debit $ Credit $
June 23 Cash(15 packs×$100) 1500
Account receivable(20 pairs×$116each) 2320
Sales Revenue 3820
(To record sales of goods)

Cost of goods sold booked with inventory.

Date Particular Debit $ Credit $
June 23 Cost of Goods sold 2675
Inventory 2675
(To record cost of goods sold)

i. Payment were made after discount period so no discount provided, cash account credit with accounts payable account debit.

Date Particular Debit $ Credit $
June 30 Accounts Payable 5040
Cash 5040
(To record payment of goods)

j. However, as the sale is made on FOB basis, no accounting entry will be posted.

Explanation of Solution

Ledgers prepared on the basis of journal entries. Whenever accounts are prepared, firstly there is journal entry than ledger prepares as per debit and credit entries of journals.

Following are the journal entries for the month of June, 2019 :

a.

Date Particular Debit $ Credit $
June 1 Inventory account(100 units×$85)+(210 units×$60) 21100
Accounts Payable 21100
(To record purchase on account)
Date Particular Debit $ Credit $
June 1 Inventory 310
Cash 310
(To record transportation cost)

Goods purchased on FOB basis, buyer will pay the transportation cost. Value of transportation cost will be included in inventory cost.

b. Inventory Purchased on cash basis, cash account credit and inventory account debit.

Date Particular Debit $ Credit $
June 2 Inventory(88 units×$65) 5720
Cash 5720
(To record purchase entry)

c. Inventory Purchased on credit basis, account payable is credit and inventory account debit.

Date Particular Debit $ Credit $
June 6 Inventory (125 units×$45) 5625
Accounts payable 5625
(To record purchase)

d. Payment made with discount @2% on cash basis, cash and discount account credit and payable account debit.

Date Particular Debit $ Credit $
June 10 Accounts Payable 21100
Purchase discount (21100×2%) 422
Cash 20678
(To record payment with discount)

e. Goods return, inventory account credit and accounts payable debit to reduce the effect of return.

Date Particular Debit $ Credit $
June 12 Accounts Payable 585
Inventory 585
(To record purchase return)

f. Sales made on cash basis. cash account is debit and revenue account credit.

Date Particular Debit $ Credit $
June 18 Cash 18984
Sales Revenue 18984
(To record cash sales)

Cost of goods sold booked with inventory.

Date Particular Debit $ Credit $
June 18 Cost of Goods sold 13295
Inventory 13295
(To record cost of goods sold)

g. Sales return booked with cash payment.

Date Particular Debit $ Credit $
June 21 Sales Return (10 pairs×$116) 1160
Cash 1160
(To record sales return of goods)

Cost of goods sold adjusted with sales return.

Date Particular Debit $ Credit $
June 21 Inventory 850
Cost of Goods sold 850
(To record cost of goods sold return)

h. Sales made on cash and credit basis, cash and account receivable account debit and sales account credit.

Date Particular Debit $ Credit $
June 23 Cash(15 packs×$100) 1500
Account receivable(20 pairs×$116each) 2320
Sales Revenue 3820
(To record sales of goods)

Cost of goods sold booked with inventory.

Date Particular Debit $ Credit $
June 23 Cost of Goods sold 2675
Inventory 2675
(To record cost of goods sold)

i. Payment were made after discount period so no discount provided, cash account credit with accounts payable account debit.

Date Particular Debit $ Credit $
June 30 Accounts Payable 5040
Cash 5040
(To record payment of goods)

j. However, as the sale is made on FOB basis, no accounting entry is to be posted.

Expert Solution
Check Mark
To determine

(b)

Income Statement:

The statement which shows the profitability of the business for the business and includes revenue, operating expenses, tax expenses, closing inventory and cost of goods sold.

The income statement of Alpharack for June 2019.

Answer to Problem 66BPSB

Jordan’s income statement is as follows:

Particulars Amount ($)
Sales Revenue ($18984$1160+$3820) 21644
Less: Cost of goods sold($13295$850+$2675) 15120
Gross Margin 6524
Less: Operating Expenses 5300
Income before Tax 1224
Less: Income tax expenses 365
Net income 859

Explanation of Solution

Income statement for the month of June 2019 :

Particulars Amount ($)
Sales Revenue ($18984$1160+$3820) 21644
Less: Cost of goods sold($13295$850+$2675) 15120
Gross Margin 6524
Less: Operating Expenses 5300
Income before Tax 1224
Less: Income tax expenses 365
Net income 859

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Chapter 6 Solutions

Cornerstones of Financial Accounting

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