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Chapter 5: Q6SE (page 296)

Suppose Piranha.com sells 3,500 books on account for \(17 each (cost of these books is \)35,700) on October 10, 2018 to The Textbook Store. One hundred of these books (cost $1,020) were damaged in shipment, so Piranha.com later received the damaged goods from The Textbook Store as sales returns on October 13, 2018.

Requirements

1. Journalize The Textbook Store’s October 2018 transactions.

2. Journalize Piranha.com’s October 2018 transactions. The company estimates sales returns at the end of each month.

Short Answer

Expert verified

Answer

The total of debits and credits for the Textbook Store is$61,200.

The total of debits and credits for Piranha.com is$97,920.

Step by step solution

01

Meaning of Journal Entries

The recording of business transactions in the tabular format is called journal entries. It follows thedual aspect concept of accountingand simultaneously reflects the transaction's debit and credit effect and chronologically records financial information.

02

Journal entries for The Textbook Store’s transactions

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Oct 10

Merchandise inventory (3,500*$17)

59,500

Accounts payable

59,500

(To record the purchases)

Oct 13

Accounts payable (100*$17)

1,700

Merchandise inventory

1,700

(To record the return of damaged goods)

03

Journal entries for Piranha.com’s transactions

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Oct 10

Accounts receivable

59,500

Sales revenue

59,500

(To record the sales)

Oct 10

Cost of goods sold

35,700

Merchandise inventory

35,700

(To record the cost of goods sold)

Oct 13

Sales revenue

1,700

Accounts receivable

1,700

(To record the sales returns)

Oct 13

Merchandise inventory

1,020

Cost of goods sold

1,020

(To record the cost of goods returned)

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Most popular questions from this chapter

M Wholesale Company began the year with merchandise inventory of \(5,000. During the year, M purchased \)93,000 of goods and returned \(6,600 due to damage. M also paid freight charges of \)1,200 on inventory purchases. At year-end, M’s ending merchandise inventory balance stood at $17,200. Assume that M uses the periodic inventory system. Compute M’s cost of goods sold for the year.

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?

Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:

Cash \( 2,900 Cost of Goods Sold \) 18,700

Selling Expenses 1,400 Equipment, net 9,500

Accounts Payable 4,300 Accrued Liabilities 1,800

Common Stock 4,365 Net Sales Revenue 29,200

Notes Payable, long-term 500 Accounts Receivable 3,200

Merchandise Inventory 1,100 Interest Expense 65

Administrative Expenses 3,300

Requirements

1. Prepare Camilia Communication’s statement of retained earnings for the year ended July 31, 2018. Assume that there were no dividends declared during the year and that the business began on August 1, 2017.

2. Prepare Camilia Communication’s classified balance sheet at July 31, 2018. Use the report format.

Journalize the following transactions that occurred in January 2018 for Sylvia’s Amusements. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Sylvia estimates sales returns at the end of each month.

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, \(7,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)100 on January 4 purchase.

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

10 Sold merchandise inventory for cash, \(1,600. Cost of goods, \)640. FOB destination.

11 Sold merchandise inventory to Graceland Corporation, \(10,800, on account, terms of 1/10, n/EOM. Cost of goods, \)5,400. FOB shipping point.

12 Paid freight bill of \(60 on January 10 sale.

13 Sold merchandise inventory to Cabbell Company, \)9,500, on account, terms of n/45. Cost of goods, \(5,225. FOB shipping point.

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

17 Received defective inventory as a sales return from the January 13 sale, \)600. Cost of goods, \(300.

18 Purchased inventory of \)4,600 on account from Roberts Corporation. Payment terms were 3/10, n/30, FOB destination.

20 Received cash from Graceland Corporation, less discount.

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

28 Received cash from Cabbell Company, less return.

29 Purchased inventory from Sandra Corporation for cash, \(11,600, FOB shipping point. Freight in paid to shipping company, \)240.

Journalize the following transactions that occurred in March 2018 for Faucet. Assume Faucet 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.

Mar. 3 Purchased merchandise inventory on account from Sidecki Wholesalers, \(3,500. Terms 2/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)75 on March 3 purchase.

4 Purchased merchandise inventory for cash of \(2,200.

6 Returned \)800 of inventory from March 3 purchase.

8 Sold merchandise inventory to Harvey Company, \(5,700, on account. Terms 2/15, n/35. Cost of goods, \)2,508.

9 Purchased merchandise inventory on account from Teaton Wholesalers, \(6,000. Terms 2/10, n/30, FOB destination.

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

13 After negotiations, received a \)100 allowance from Teaton Wholesalers.

15 Sold merchandise inventory to Jackson Company, \(2,900, on account. Terms n/EOM. Cost of goods, \)1,276.

22 Made payment, less allowance, to Teaton Wholesalers for goods purchased on March 9.

25 Sold merchandise inventory to Secker for \(2,000 on account that cost \)880. Terms of 2/10, n/30 were offered, FOB shipping point. As a courtesy to Secker, $85 of freight was added to the invoice for which cash was paid by Faucet.

28 Received payment from Harvey Company.

29 Received payment from Secker, less discount.

30 Received payment from Jackson Company.
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