Question

Prepare correcting general journal entries required at December 31, 2016, assuming that the books have not been closed.

Materials costing $7,300 were returned to the supplier on December 29, 2016, and were shipped f.o.b. shipping point. The return was entered on that date, even though the materials are not expected to reach the supplier's place of business until January 6, 2017.

Answer 1

The preparation of correcting general journal entries for returned materials requires crediting the Purchases or Inventory account and debiting the Accounts Payable account. FOB shipping point terms necessitate this adjustment when the shipment occurs. The self-check question's answer is that the firm's accounting profit is $50,000.

Step-by-step explanation:

The student's question concerns the preparation of correcting general journal entries at the fiscal year-end, which is a topic related to accounting, a sub-discipline of business. Specifically, the situation deals with the return of materials that were shipped back to the supplier but won't arrive until the next calendar year. This scenario impacts how and when the transaction is recorded in the company's accounting records. When materials costing $7,300 are returned to the supplier, an adjustment needs to be made to the books to reflect this transaction on December 29, 2016, despite the materials reaching the supplier in January 2017. As the shipping terms are FOB shipping point, the responsibility and ownership of the materials transfer to the supplier once they are shipped, meaning the return should be recognized when shipment occurs, not when the materials are received by the supplier.

Accordingly, the correcting general journal entry would involve crediting the Purchases account or Inventory account (depending on the company's accounting system) and debiting the Accounts Payable account to reverse the initial entry.

For example, the entry might look like:

• Credit Purchases or Inventory $7,300
• Debit Accounts Payable $7,300

This entry effectively removes the cost of the materials from the company's records and reduces the amount owed to the supplier.

Regarding the self-check question provided, to calculate the firm's accounting profit, we subtract the total expenses from the total sales revenue. Therefore:

Accounting Profit = Sales Revenue - (Labor Costs + Capital Costs + Material Costs) Accounting Profit = $1,000,000 - ($600,000 + $150,000 + $200,000) Accounting Profit = $50,000

The firm's accounting profit for the year would be $50,000.