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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 FOB shipping point and FOB destination. When does the buyer take ownership of the goods, and who typically pays the freight?

Click Computers’ Merchandise Inventory account at year-end is showing a balance of \(43,000. The physical count of inventory came up with \)42,500. Journalize the adjusting entry needed to account for the inventory shrinkage. The company uses the perpetual inventory system.

What account is debited when recording the payment of freight when using the periodic inventory system?

Click Computers has the following transactions in July related to the sale of merchandise inventory.

July 12 Sold computers on account for \(8,000 to a customer, terms 3/15, n/30. The cost of the computers is \)4,800. Click uses the gross method for recording sales revenue.

26 Received payment from the customer on balance due.

Journalize the sales transactions for Click Computers assuming the company uses 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.
See all solutions

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