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SC (70)
ACCT (5)
Chapter 4

ACCT 225 Chapter Notes - Chapter 4: Accounts Receivable, Trial Balance, Deferral


Department
Accounting
Course Code
ACCT 225
Professor
Allwright
Chapter
4

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Apr. 2
3
4
17
18
21
28
Date Debit Credit
Apr. 2 3,600
3,600
3202
202
4550
550
17 3,050 (3,600 - 550)
61 (3,050 x 2%)
2,989 (3,050 x 98%)
18 7,650
7,650
21 2,142
2,142
28 5,508 (7,650 - 2,142)
110 (5,508 x 2%)
5,398 (5,508 x 98%)
(1) Prepare journal entries to record the following transactions for a retail store. Assume a
perpetual inventory system.
NOTE: FOB - "Title Changes at" FOB - shipping point - Responsibilty transfers at a time the units are shipped.
NOTE: 2/15 means take a 2% discount if you pay within 15 days, otherwise the entire amount is due in 60 days
Sent check to Frist paying for the April 18 purchase, net of the discount and allowance.
After negotiations, received from Frist a $2,142 allowance on the April 18 purchase.
Purchased merchandise from Frist Corp. under the following terms: $7,650 price, invoice
dated April 18, credit terms of 2/10, n/30, and FOB destination.
Paid $202 for shipping charges on the April 2 purchase.
Purchased merchandise from Lyon Company under the following terms: $3,600 price,
invoice dated April 2, credit terms of 2/15, n/60, and FOB shipping point.
Returned to Lyon Company unacceptable merchandise that had an invoice price of $550.
Sent a check to Lyon Company for the April 2 purchase, net of the discount and the
returned merchandise.
Accounts payable - Frist
General Ledger
Merchandise inventory
Merchandise inventory
Accounts payable - Lyon
Merchandise inventory
Accounts payable - Lyon
Cash
Merchandise inventory
Accounts payable - Lyon
Cash
Merchandise inventory
Accounts payable - Frist
Accounts payable - Frist
Merchandise inventory
Merchandise inventory
Cash

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1
2 Santa Fe paid within the discount period.
3
4 Santa Fe paid within the discount period.
#Debit Credit
123,900 BUYER
23,900
2 23,900
478 (23,900 x 2%)
23,422 (23,900 x 98%)
3a 23,900 SELLER
23,900
3b 16,300
16,300
4 23,422 (23900 x 98%)
478 (23,900 x 2%)
23,900
478.00
23,422 (Amount Borrowed)
8%
50 (# of Days of Interest)
256.68 (Total Interest Cost or Exp.)
221.32
P x R x T
Net Savings
Assume that the buyer borrowed enough cash to pay the balance on the last day of the
discount period at an annual interest rate of 8% and paid it back on the last day of the
credit period. Compute how much the buyer saved by following this strategy.
NOTE: Take a 3% discount if you pay within 10 days, otherwise payment is due in 60 days
Savings - early payment discount
Interest Cost:
Principal
Rate
Time = 60 days - 10 days
General Ledger
Merchandise inventory
Accounts payable - Mesa
(2) Prepare journal entries that the buyer should record for (a) the purchase and (b) the
cash payment, and seller should record for (a) the sales and (b) the cash collection
Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice
price of $23,900 and credit terms of 2/10, n/60. The merchandise had cost Mesa $16,300.
Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice
price of $23,900 and credit terms of 2/10, n/60.
Sales Discounts
Accounts receivable - Santa Fe
Merchandise inventory
Cost of goods sold
Accounts payable - Mesa
Merchandise inventory
Cash
Accounts recievable - Santa Fe
Sales
Cash

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a.
b.
c.
Date Debit Credit
May. 5 12,960
12,960
5 8,640
8,640
7 4,536
4,536
7 3,024
3,024
8360
360
15 644
644
15 344
344
12,960 =
-5,540 = (4,536 + 360 + 644)
7,420
-5,272 = (8,640 - 3,024 - 344)
2,148
Gross margin
Cost of goods sold
Net sales
Sales return and allowances
Sales
(12,960)
(Allied Parts restores the units to its
inventory.)
(b.) (Since units aren't returned don't
debit/credit like May 7)
(c.)
(c.) (Allied Parts restores the 43
returned units to its inventory.)
(Baker returns 378 units b/c they did
not fit the customer's needs.)
Merchandise inventory (43 @ $8)
Cost of goods sold
Cost of goods sold
Sales returns & allowance
Accounts recievable
Sales returns & allow. (43 @ $12) + $128
Accounts recievable
Merchandise inventory
Sales returns & allow. (378 @ $12)
Accounts recievable
Merchandise inventory (378 @ $8)
Allied Parts - Seller
Accounts recievable
Sales (1,080 @ $12)
Cost of goods sold (1,080 @ $8)
Allied Parts was organized on May 1, 2013, and made its first purchase of merchandise on May 3.
The purchase was for 1,800 units at a price of $8 per unit. On May 5, Allied Parts sold 1,080 of the
units for $12 per unit to Baker Co. Terms of the sale were 2/10, n/60.
On May 15, Baker discovers that 108 units are the wrong color. Baker keeps 65 of these
units because Allied Parts sends a $128 credit memorandum to compensate. Baker
returns the remaining 43 units to Allied Parts. Allied Parts restores the 43 returned units
to its inventory.
On May 8, Baker discovers that 90 units are damaged but are still of some use and,
therefore, keeps the units. Allied Parts sends Baker a credit memorandum for $360 to
compensate for the damage.
On May 7, Baker returns 378 units because they did not fit the customer’s needs. Allied
Parts restores the units to its inventory.
(Record the sale of merchandise to
Baker Co.)
(Record the cost of goods sold.)
(3) Prepare entries for Allied Parts to record the May 5 sale and each of the following
separate transactions a through c using a perpetual inventory system.
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