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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.

Describe the single-step income statement.

Party-Time T-Shirts sells T-shirts for parties at the local college. The company completed the first year of operations, and the shareholders are generally pleased with operating results as shown by the following income statement:

PARTY-TIME T-SHIRTS

Income Statement

Year Ended December 31, 2017

Net Sales Revenue \(350,000

Cost of Goods Sold 210,000

Gross Profit 140,000

Operating Expenses:

Selling Expense 40,000

Administrative Expense 25,000

Net Income \)75,000

Bill Hildebrand, the controller, is considering how to expand the business. He proposes two ways to increase profits to \(100,000 during 2018.

a. Hildebrand believes he should advertise more heavily. He believes additional advertising costing \)20,000 will increase net sales by 30% and leave administrative expense unchanged. Assume that Cost of Goods Sold will remain at the same percentage of net sales as in 2017, so if net sales increase in 2018, Cost of Goods Sold will increase proportionately.

b. Hildebrand proposes selling higher-margin merchandise, such as party dresses, in addition to the existing product line. An importer can supply a minimum of 1,000 dresses for \(40 each; Party-Time can mark these dresses up 100% and sell them for \)80. Hildebrand realizes he will have to advertise the new merchandise, and this advertising will cost $5,000. Party-Time can expect to sell only 80% of these dresses during the coming year.

Help Hildebrand determine which plan to pursue. Prepare a multi-step income statement for 2018 to show the expected net income under each plan.

What account is debited when recording a purchase of inventory when using the perpetual inventory system?

What is freight out and how is it recorded by the seller?
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