Question

quired Clearly Optis expects to grow rapidly and increase its level of inventory. As accountant of the coinpany, you wish to install a perpetual inventory system. Write a o to the company president to explain how the system would work. Use the following heading for your memo: Date: To: From: Subject: Company President Chief Accountant How a perpetual inventory system works Problem 5-2B The following transactions occurred between Cloutier Pharmaceuticals and Arnold Drug Stores during June of the current year: Accounting for the purchase and sale of inventory under the perpetual inventory system 2 Jun. 8 Arnold purchased $29,400 of merchandise from Cloutier on credit terms 2/10, n/30, FOB shipping point. Separately, Arnold paid freight-in of $600. Cloutier invoiced Arnold for $29,400. These goods cost Cloutier $12,600. Arnold returned $3,600 of the merchandise purchased on June 8. Cloutier issued a credit memo for this amount and returned the goods, in excellent condition, to inventory (cost $1,500). Arnold paid $12,000 of the invoice amount owed to Cloutier for the June 8 purchase. This payment included none of the freight charge. Arnold took the purchase discount on the partial payment. Arnold paid the remaining amount owed to Cloutier for the June 8 purchase. 26 Required Journalize these transactions, first on the books of Arnold Drug Stores, and w on the books of Cloutier Pharmaceuticals. Both companies use the perpetual inven- tory system. Probl. w alinin nurchase and sale

Answer 1

Journal entries:

In the books of Arnold Drug Stores(Buyer):

Date	Account title and explanation	Debit	Credit
June 8	Merchandise inventory	$29,400
	Accounts payable		$29,400
	[To record purchase merchandise on account]
	Merchandise inventory	$600
	Cash		$600
	[To record freight paid]
June 11	Accounts payable	$3,600
	Merchandise inventory		$3,600
	[To record purchase returns]
June 17	Accounts payable	$12,000
	Cash		$11,760
	Merchandise inventory (12,000 x 2%)		$240
	[To record payment for accounts payable]
June 26	Accounts payable [29,400-3,600-12,000]	$13,800
	Cash		$13,800
	[To record payment for accounts payable]

In the books of Cloutier Pharmaceuticals(Seller):

Date	Account title and explanation	Debit	Credit
June 8	Accounts receivable	$29,400
	Service revenue		$29,400
	[To record sales on account]
	Cost of goods sold	$12,600
	Merchandise inventory		$12,600
	[To record cost of goods sold]
June 11	Sales returns and allowance	$3,600
	Accounts receivable		$3,600
	[To record sales returns]
	Merchandise inventory	$1,500
	Cost of goods sold		$1,500
	[To record cost of sales returns]
June 17	Cash	$11,760
	Sales discount [12,000 x 2%]	$240
	Accounts receivable		$12,000
	[To record collections from customers]
June 26	Cash [29,400-3,600-12,000]	$13,800
	Accounts receivable		$13,800
	[To record collections from customers]