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Chapter 5: Q20E (page 300)

Howie Jewelers had the following purchase transactions. Journalize all necessary transactions. Explanations are not required.

Jun. 20 Purchased inventory of \(5,100 on account from Sanders Diamonds, a jewelry importer. Terms were 2/15, n/45, FOB shipping point.

20 Paid freight charges, \)400.

Jul. 4 Returned \(600 of inventory to Sanders.

14 Paid Sanders Diamonds, less return.

16 Purchased inventory of \)3,500 on account from Southboro Diamonds, a jewelry importer. Terms were 2/10, n/EOM, FOB destination.

18 Received a $300 allowance from Southboro Diamonds for damaged but usable goods.

24 Paid Southboro Diamonds, less allowance, and discount.

Short Answer

Expert verified

The total of debits and credits is$18,036.

Step by step solution

01

Meaning of Purchase Transactions

In accounting, purchase transactions refer to the events that bring the goods in. Under this process, a business concern acquiresgoods from the supplier to resell them to generateprofits.

02

Preparation of journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

Jun 20

Merchandise inventory

5,100

Accounts payable

5,100

Jun 20

Freight expenses

400

Cash

400

Jul 4

Accounts payable

600

Merchandise inventory

600

Jul 14

Accounts payable (5100-600)

4,500

Cash

4,500

Jul 16

Merchandise inventory

3,500

Accounts payable

3,500

Jul 18

Accounts payable

300

Merchandise inventory

300

Jul 24

Accounts payable (3200-3200*2%)

3,136

Cash

3,136

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Most popular questions from this chapter

Question: Journalize the following transactions that occurred in January 2018 for Mike’s Amusements. Assume Mike’s 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.

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, \(5,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)150 on January 4 purchase.

8 Returned half the inventory purchased on January 4 from Vanderbilt Company.

10 Sold merchandise inventory for cash, \(1,100. Cost of goods, \)440. FOB destination.

11 Sold merchandise inventory to Gilmore Corporation, \(10,100, on account, terms of 3/10, n/EOM. Cost of goods, \)5,555. FOB shipping point.

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

13 Sold merchandise inventory to Cadet Company, \)8,800, on account, terms of 3/10, n/45. Cost of goods, \(4,400. FOB shipping point.

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

18 Purchased inventory of \)4,600 on account from Roberts Corporation. Payment terms were 1/10, n/30, FOB destination.

20 Received cash from Gilmore Corporation, less discount.

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

28 Received cash from Cadet Company.

29 Purchased inventory from Silk Corporation for cash, \(12,000, FOB shipping point. Freight in paid to shipping company, \)240.

Describe the calculation of cost of goods sold when using the periodic inventory system.

Highlight the differences in the closing process when using the periodic inventory system rather than the perpetual inventory system.

Comparing periodic and perpetual inventory systems

For each statement below, identify whether the statement applies to the periodic inventory system, the perpetual inventory system, or both.

a. Normally used for relatively inexpensive goods.

b. Keeps a running computerized record of merchandise inventory.

c. Achieves better control over merchandise inventory.

d. Requires a physical count of inventory to determine the quantities on hand.

e. Uses bar codes to keep up-to-the-minute records of inventory.

What does the gross profit percentage measure, and how is it calculated?
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