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Chapter 5: Q5-2TI (page 260)

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

July 1 Purchase of \(20,500 worth of computers on account, terms of 2/10, n/30.

3 Return of \)4,000 of the computers to the vendor.

9 Payment made on the account.

Journalize the purchase transactions for Click Computers assuming the company uses the perpetual inventory system.

Short Answer

Expert verified

The total debit and credit for the journal are $41,000.

Step by step solution

01

Meaning of Perpetual Inventory System

The perpetual inventory system immediately records the sale and purchase of inventoriesthrough an electronic medium. This system requires computers and knowledge to record inventory-related transactions.

02

Preparation of journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

July 1

Inventory

20,500

Accounts payable

20,500

(To record the purchase of computers)

July 3

Accounts payable

4,000

Inventory

4,000

(To record the return of goods)

July 9

Accounts payable

16,500

Bank

16,170

Inventory

330

(To record the payment within the discount period)

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Most popular questions from this chapter

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

July 1 Purchase of \(20,500 worth of computers on account, terms of 2/10, n/30.

3 Return of \)4,000 of the computers to the vendor.

9 Payment made on the account.

12 Sold computers on account for $8,000 to a customer, terms 3/15, n/30.

26 Received payment from customer on balance due.

Journalize the transactions for Click Computers assuming that the company uses the periodic inventory system.

Triton Department Store uses a periodic inventory system. The adjusted trial balance of Triton Department Store at December 31, 2018, follows:

TRITON DEPARTMENT STORE

Adjusted Trial Balance

December 31, 2018

Balance

Account Title Debit Credit

Cash \(8,200

Accounts Receivable 84,600

Merchandise Inventory (beginning) 37,800

Office Supplies 850

Furniture 86,000

Accumulated Depreciation-Furniture \)18,500

Accounts Payable 29,400

Salaries Payable 2,300

Unearned Revenue 14,900

Notes Payable, long-term 36,000

Common Stock 60,000

Retained Earnings 22,850

Dividends 88,600

Sales Revenue 374,000

Purchases 295,000

Purchase Returns and Allowances 109,000

Purchase Discounts 6,400

Freight-In 300

Selling Expense 41,700

Administrative Expense 26,600

Interest Expense 3,700

Total \(673,350 \)673,350

Requirements

1. Prepare Triton Department Store’s multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,300.

2. Journalize Triton Department Store’s closing entries.

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.

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?

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.
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