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Chapter 5: Q5-8RQ (page 294)
What account is debited when recording a purchase of inventory when using the perpetual inventory system?
When the perpetual inventory system is used, themerchandise inventory account is debited at the time of purchase.
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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.
Journalize the following transactions that occurred in November 2018 for May’s Adventure Park. Assume May’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.
Nov. 4 Purchased merchandise inventory on account from Valera Company, \(8,000. Terms 1/10, n/EOM, FOB shipping point.
6 Paid freight bill of \)160 on November 4 purchase.
8 Returned half the inventory purchased on November 4 from Valera Company.
10 Sold merchandise inventory for cash, \(1,700. Cost of goods, \)680. FOB destination.
11 Sold merchandise inventory to Garrison Corporation, \(10,300, on account, terms of 3/10, n/EOM. Cost of goods, \)5,150. FOB shipping point.
12 Paid freight bill of \(30 on November 10 sale.
13 Sold merchandise inventory to Cain Company, \)9,000, on account, terms of 1/10, n/45. Cost of goods, \(4,500. FOB shipping point.
14 Paid the amount owed on account from November 4, less return and discount.
18 Purchased inventory of \)3,700 on account from Regan Corporation. Payment terms were 2/10, n/30, FOB destination.
20 Received cash from Garrison Corporation, less discount.
26 Paid amount owed on account from November 18, less discount.
28 Received cash from Cain Company.
29 Purchased inventory from Sanders Corporation for cash, \(12,000, FOB shipping point. Freight in paid to shipping company, \)200.
Ocean Life Boat Supply uses the periodic inventory method. The adjusted trial balance of Ocean Life Boat Supply at December 31, 2018, follows:
Requirements
1. Journalize the required closing entries at December 31, 2018. Assume ending Merchandise Inventory is $54,300.
2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing entries to the T-accounts, and calculate their ending balances.
3. How much was Ocean Life’s net income or net loss?
Highlight the differences in the closing process when using the periodic inventory system rather than the perpetual inventory system.
What are the two types of merchandisers? How do they differ?
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