Question

Alpha Company used the periodic inventory system for purchase & sales of merchandise. Discount terms for both purchase & sales are, FOB Destination, 2/10, n30 and the gross method is used.

Alpha Company sold on account merchandise costing $3,000 to Bravo Company on May 2, 2016. Selling price was $4,500. Freight charges related to this transaction of $200 were paid by Alpha Company.
Bravo Company returned, to Alpha Company, merchandise with an original cost to Alpha of $300 on May 3, 2016. Merchandise was sold to Bravo for $450.
Use this information to prepare Alpha Company's General Journal entries (without explanation) for May 2 & May 3 entries.

Answer 1

May 2

Trade Receivable $4.700 (debit)

Sales Revenue $4,700 (credit)

May 3

Sales Revenue $450 (debit)

Trade Receivable $450 (credit)

Step-by-step explanation:

First, it is important to identify in whose books we are required to make the accounting entries. In this case we are required to record in Alpha (supplier) records.

Note also that Alpha Company, Alpha Company uses the periodic inventory system for purchase & sales of merchandise. This means inventory valuation is done at the end of financial year.

May 2

This is is the date of sale, we recognize the Revenue and the asset - Account Receivable. The amount should include the freight charges since this is a FOB destination shippment.

May 3

The date that the merchandise was returned. We derecognize the sale and the asset - Trade Receivable to the extent of the selling price of the goods returned