ACCT 201 Principles of Financial Accounting Practice Exam - Chapter 4 Reporting & Analyzing Merchandising Activities Dr. Fred Barbee Solution to Problem #1

A company had the following transactions during December:

a.	Sold merchandise on credit for $5,000, terms 3/10, n/30. The items sold had a cost of $3,500.
b.	Purchased merchandise for cash, $720.
c.	Purchased merchandise on credit for $2,600, terms 1/20, n/30.
d.	Issued a credit memorandum for $300 to a customer who returned merchandise purchased November 29. The returned items had a cost of $210.
e.	Received payment for merchandise sold December 1.
f.	Received a credit memorandum for the return of faulty merchandise purchased on December 4 for $600.
g.	Paid freight charges of $200 for merchandise ordered last month. (FOB shipping point).
h.	Paid for the merchandise purchased December 4 less the portion that was returned.
i.	Sold merchandise on credit for $7,000, terms 2/10, n/30. The items had a cost of $4,900.
j.	Received payment for merchandise sold on December 24.

Required:

Prepare the general journal entries to record these transactions using a perpetual inventory system. (Record all purchases initially at the gross invoice amount.)

Solution

Accounts Receivable	5,000
Sales		5,000

Cost of Goods Sold	3,500
Merchandise Inventory		3,500

Merchandise Inventory	720
Cash		720

Merchandise Inventory	2,600
Accounts Payable		2,600

Sales Returns and Allowances	300
Accounts Receivable		300

Merchandise Inventory	210
Cost of Goods Sold		210

Cash	4,850
Sales Discounts	150
Accounts Receivable		5,000

Accounts Payable	600
Merchandise Inventory		600

Merchandise Inventory	200
Cash		200

Accounts Payable	2,000
Merchandise Inventory ($2,000 x .01)		20
Cash		1,980

Accounts Receivable	7,000
Sales		7,000

Cost of Goods Sold	4,900
Merchandise Inventory		4,900

Cash	6,860
Sales Discounts	140
Accounts Receivable		7,000