Question

xercise 1: 1. In May 7 Ali Co. purchase goods FOB shipping point from Ahmed Co. for $5000 on account under credit terms 2/10, n/30, 2. in May 7, Ali Co. paid cash $150 as freight expenses FOB shipping point 3. May 12 Ali Co, returns goods purchased in May 7 to Ahmed Co. for $300 4. in May 15, Ali Co. paid the balance due within the discount period structions: Prepare Journal entries assuming periodic inventory system. Purchase transactions: 1 Purchases

Answer 1

Periodic Inventory System - All purchases are accounted under "Purchases account" and purchase returns under "Purchase returns account". Similarly sales under "Sales account" and sales returns under "Sales returns account". Only during month end or at regular intervals (as decided by management), Cost of Goods sold (COGS) entry will take effect in "Merchandise Inventory" account, which considers opening inventory, purchases and sales during the month and to ensure that closing inventory reconciles with physical count of inventory.

Under Perpetual inventory systems, each purchase or COGS related to sales and corresponding returns are accounted under "Merchandise Inventory account" . Thus, automatically closing inventory reconciles with physical count after every transaction.

Freight charges: "FOB shipping point" denotes "buyer" pays the charges and "FOB destination" denotes "seller" pays the charges.

Credit Terms 1/10, n/30 denotes invoice has to be paid within 30 days for no discount and 1% discount can be availed, if paid within 10 days. Thus, 2/10 denotes 2% discount if paid within 10 days.

Based on above clarifications, here's the journal entries (Discount calculations are provided in "brackets" for understanding purpose only and need not give in your answer sheet):

Exercise 1:

7-May Dr 5,000 Trai Journal Entries under Periodic Inventory system: Purchases Accounts Payable-Ahmed Co. (To record purchases from Ahmed Co. terms 2/10, n/30) 5,000 7-May Dr 150 Freight-In Expenses Cash (To record payment of freight charges-FOB shipping point) 150 12-May Dr 300 Accounts Payable-Ahmed Co. Purchase Returns and Allowances (To record purchase Returns and Allowances) 300 15-May Dr. 4,700 Accounts Payable - Ahmed Co. Purchase Discount (5000-300)*2% Cash (To record payment to Ahmed Co. after discount of 2% on o/s balance, as per terms 2/10)) 94 4,606 16-May Dr. 4,000 Accounts Receivable - Sami Co Sales Revenue (To record sale of 40 units @ $100 per unit under terms 2/10, n/30) 4,000 16-May Dr 350 C Freight outwards Cash (To record payment of freight charges at FOB Destination) 350 500 17-May Dr Cr Sales Returns and Allowances Accounts Receivable - Sami Co (To record Sales return of 5 units @ $100 per unit from Sami Co) 500 20-May Dr 70 3,430 Cash Sales Discont (4000-500)*2% Accounts Receivable - Sami Co (To record cash receipt after discount of 2% on o/s balance, as per terms 2/10) 3,500

Exercise 2:

Exercise 3:

1,250 Exercise 2: Journal Entries under Periodic Inventory system: 4-Sep Dr Purchases Accounts Payable - Jenks (To record purchase of 50 backpacks @ $ 25 each on account, terms 2/10, n/30) 1,250 6-Sep Dr 150 Accounts Payable - Jenks Purchase Returns and Allowances (To record return of 6 defective backpacks) 150 9-Sep Dr 1,050 Accounts Receivable - McGill books Sales Revenue (To record sales of 30 backpacks @ $ 35 Each to McGill Books, terms 2/10, n/30) 1,050 13-Sep Dr 525 Accounts Receivable - Calvin Office Supply Sales Revenue (To record sales of 15 backpacks @ $ 35 Each to Calvin Office Supply, terms 2/10, n/30) 525 14-Sep Dr 1,100 22 Cr Accounts Payable - Jenks Purchase Discount (1250-150)*2% Cash (To record payment after discount of 2% as per terms of purchase) 1,078

40,000 Exercise 3: Journal Entries under Periodic Inventory system: Purchase Accounts Payable-Tri-State (to record purchase on account at terms 2/10, n/30) 40,000 4,000 Accounts Payable-Tri-State Purchase Returns and Allowances (To record purchase Returns and Allowances) 4,000 36,000 Accounts Payable-Tri-State Purchase Discount (40000-4000)*2% Cash (To record payment after availing discount of 2% on o/s balance of $36000($40000-$4000) 720 35,280

Exercise 4:

L 360,000 Exercise 4: Journal Entries under Periodic Inventory system: 1-May Dr Purchase Accounts Payable-Sameer Trading (to record purchase of 300 PC's on account @ $ 1200 EA terms 2/10, n/30) 360,000 2-May Dr 2,400 Accounts Payable-Sameer Trading Purchase Returns and Allowances (to record purchase Returns and Allowances of 2 PC's @ $ 1200 EA) 2,400 3-May Dr 37,500 Accounts Receivable - Smart System Sales Revenue (To record sale of 25 PC's at $ 1500 EA terms 1/10, n/30) 37,500 7-May Dr 4,500 Office Equipment Accounts Payable - H.R. Co. (To record purchase of office equipment) 4,500 8-May Dr 37,125 375 Cash Sales Discount (37500) *1% Accounts Receivable - Smart System (To record cash received from Smart system after discount of 1% as per terms) 37,500 9-May Dr 357,600 Tor Accounts Payable-Sameer Trading Purchase Discount ((36000-2400) *2%) Cash (To record payment to Sameer Trading after discount of 2%) 7,152 350,448 10-May Dr 22,500 Cr Accounts Receivable - Net Soft Co Sales Revenue (To record sale of 15 PC's at $ 1500 EA terms 1/10, n/30) 22,500 13-May Dr 1,500 Sales Returns and Allowances and allowances Accounts Receivable - Net Soft Co (to record sales return - 1 PC @ $ 1500) 1,500 18-May Dr 20,790 210 Cash Sales Discount (22500-1500) *1% Accounts Receivable - Net Soft Co (To record cash received from Net Soft after discount of 1%) 21,000 20-May Dr 4,500 Accounts Payable - H.R. Co. Cash (To record payment to H.R. Co.) 4,500