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Q4-16E

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Financial & Managerial Accounting
Found in: Page 212
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Refer to Exercise 4-6 and prepare journal entries to record each of the merchandising transactions assuming that the periodic inventory system and the gross method are used by both the buyer and the seller.

Answer

Both debit and credit sides of the journal amount to $72,000 each.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Definition of Periodic Inventory System

The reporting system under which a business entity calculates the inventory by physical inspection once at year-end is known as a periodic inventory system.

Step 2: Journal entries for the buyer

Date

Accounts and Explanation

Debit $

Credit $

a

Purchases

$24,000

Account payable

$24,000

b

Account payable

24,000

Purchase discount

720

Cash

23,280

c

Account payable

24,000

Cash

24,000

$72,000

$72,000

Step 3: Journal entries for the seller

Date

Accounts and Explanation

Debit $

Credit $

a

Accounts receivable

$24,000

Sales

$24,000

b

Cash

23,280

Sales discount

720

Accounts receivable

24,000

c

Cash

24,000

Accounts receivable

24,000

$72,000

$72,000

Most popular questions for Business-studies Textbooks

Prepare journal entries to record the following merchandising transactions of IKEA, which uses the perpetual inventory system and gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on May 2 in Accounts Payable—Havel.)

May 2 Purchased merchandise from Havel Co. for $10,000 under credit terms of 1∕15, n∕30, FOB shipping point, invoice dated May 2.

4 Sold merchandise to Rath Co. for $11,000 under credit terms of 2∕10, n∕60, FOB shipping point, invoice dated May 4. The merchandise had cost $5,600.

5 Paid $250 cash for freight charges on the purchase of May 2.

9 Sold merchandise that had cost $2,000 for $2,500 cash.

10 Purchased merchandise from Duke Co. for $3,650 under credit terms of 2∕15, n∕60, FOB destination, invoice dated May 10.

12 Received a $650 credit memorandum from Duke Co. for the return of a portion of the merchandise purchased on May 10.

14 Received the balance due from Rath Co. for the invoice dated May 4, net of the discount.

17 Paid the balance due to Havel Co. within the discount period.

20 Sold merchandise that cost $1,450 to Tamer Co. for $2,800 under credit terms of 2∕15, n∕60, FOB shipping point, invoice dated May 20.

22 Issued a $300 credit memorandum to Tamer Co. for an allowance on goods sold on May 20. 4

25 Paid Duke Co. the balance due, net of the discount.

30 Received the balance due from Tamer Co. for the invoice dated May 20, net of discount and allowance.

31 Sold merchandise that cost $3,600 to Rath Co. for $7,200 under credit terms of 2∕10, n∕60, FOB shipping point, invoice dated May 31.

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