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Chapter 5: Q3SE (page 296)

Consider the following transactions for Burlington Drug Store:

Feb. 2 Burlington buys \(23,800 worth of inventory on account with credit terms of 2/15, n/30, FOB shipping point.

4 Burlington pays a \)50 freight charge.

9 Burlington returns $5,200 of the merchandise due to damage during shipment.

14 Burlington paid the amount due, less return and discount.

Requirements

1. Journalize the purchase transactions. Explanations are not required.

2. In the final analysis, how much did the inventory cost Burlington Drug Store?

Short Answer

Expert verified

Answer

The cost of inventory is$18,278.

Step by step solution

01

Meaning of Credit Term

In accounting, credit term refers to the terms and conditions associated with the payment of goods sold or bought by a business entity. Credit term generally depicts thediscount and due daysof payment.

02

Journal entries for purchase transactions

Date

Accounts and Explanation

Debit ($)

Credit ($)

Feb 2

Merchandise Inventory

23,800

Accounts payable

23,800

Feb 4

Merchandise inventory

50

Cash

50

Feb 9

Accounts payable

5,200

Merchandise inventory

5,200

Feb 14

Accounts payable (23,800-5,200)

18,600

Cash (18,600-372)

18,228

Merchandise inventory (18,600*2%)

372

03

Computation of inventory cost

Inventorycost=Valueofinventory+Freightcharges-Returns-Discount=$23,800+$50-$5,200-$372=$18,278

Hence, the Company Burlington Drug Store consisting an inventory cost of $18,278.

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Most popular questions from this chapter

When granting a sales allowance is there a return of merchandise inventory from the customer? Describe the journal entry(ies) that would be recorded.

On November 4, 2018, Cain Company sold merchandise inventory on account to Tarin Wholesalers, \(12,000, that cost \)4,800. Terms 3/10, n/30. On November 5, 2018, Tarin Wholesalers paid shipping of $30. Tarin Wholesalers paid the balance to Cain Company on November 13, 2018.

Requirements

1. Journalize Tarin Wholesaler’s November transactions.

2. Journalize Cain Company’s November transactions.

Journalize the following transactions that occurred in June 2018 for Daley Company. Assume Daley uses the periodic inventory system. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Daley estimates sales returns at the end of each month.

Jun. 3 Purchased merchandise inventory on account from Sherry Wholesalers, \(5,500. Terms 3/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)42 on June 3 purchase.

4 Purchased merchandise inventory for cash of \(1,100.

6 Returned \)200 of inventory from June 3 purchase.

8 Sold merchandise inventory to Henrich Company, \(4,400, on account. Terms 2/15, n/35.

9 Purchased merchandise inventory on account from Tex Wholesalers, \)4,600. Terms 1/10, n/30, FOB destination.

10 Made payment to Sherry Wholesalers for goods purchased on June 3, less return and discount.

12 Received payment from Henrich Company, less discount.

13 After negotiations, received a \(300 allowance from Tex Wholesalers.

15 Sold merchandise inventory to Jarvis Company, \)1,500, on account. Terms n/EOM.

22 Made payment, less allowance, to Tex Wholesalers for goods purchased on June 9.

23 Jarvis Company returned \(100 of the merchandise sold on June 15.

25 Sold merchandise inventory to Smith for \)700 on account. Terms of 3/10, n/30 was offered, FOB shipping point.

29 Received payment from Smith, less discount.

30 Received payment from Jarvis Company, less return.

Under the new revenue recognition standard, what most companies do at the end of the period related to sales returns? Describe the journal entries that would be recorded.

What is an invoice?
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