Question

James Company began the month of October with inventory of $20,000. The following inventory transactions occurred during the month: The company purchased merchandise on account for $29,500 on October 12, 2018. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $550 were paid in cash. On October 31, James paid for the merchandise purchased on October 12. During October, merchandise costing $18,750 was sold on account for $29,000. It was determined that inventory on hand at the end of October cost $30,710. Required: 1. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. 2. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions.

Answer 1

Answer and Explanation:

1. Periodic inventory system

a.Purchase Dr, $28,910

To Accounts payable $28,910

(Being purchase of inventory is recorded)

Working note

Purchase discount = Gross purchase × Purchase discount rate

= $29,500 × 2%

= $590

Net purchase = Gross purchase - Purchase discount

= $29,500 - $590

= $28,910

Freight-in Dr, $550

To Cash $550

(Being freight cost is recorded)

b. Accounts payable Dr, $28,910

Interest expense Dr, $590

To Cash $29,500

(Being the payment made to suppliers is recorded)

c. Accounts receivable Dr, $29,000

To Sales revenue $29,000

(Being the sale on account is recorded)

For cost of goods sold no Journal entry is required under periodic method

Adjusting entry of year end

Ending Merchandise inventory Dr,$30,710

Cost of goods sold Dr, $18,750

To Beginning inventory $20,000

To Purchases $28,910

To Freight-in $550

(Being cost of goods sold is recorded)

Perpetual inventory system

Merchandise inventory Dr, $28,910

To accounts payable $28,910

(Being purchase of inventory is recorded)

Freight

Merchandise inventory Dr, $550

To cash $550

b. Payment of accounts payable

Accounts payable Dr, $28,910

Interest expenses Dr, $590

To Cash $29,500

(Being payment made to supplier is recorded)

Sales

Accounts payable Dr, $29,000

To Service revenue $29,000

(Being Sales is recorded)

Cost of goods sold

Cost of goods sold Dr,$18,750

To merchandise inventory $18,750

(Being Cost of goods sold is recorded)

d. Adjusting entry of year end

No Journal entry is required