Question #3 The Inventory Company has provided a handful of inventory transactio
ID: 2466405 • Letter: Q
Question
Question #3
The Inventory Company has provided a handful of inventory transactions for the month of May 2015. The name of their product is “Thing”, the unit cost is $8.50 and the selling price is $19.00.
The Inventory Company uses the Perpetual Inventory System
May 1
Purchased 3,000 Things from Vendor A with the terms 2/10, n/30, FOB Shipping Point.
May 3
Received freight bill of $350 for the May 1 transaction.
May 5
Returned 190 Things back to Vendor A for quality issues, received credit from Vendor A
May 7
Sold 1,700 Things to Customer Z, terms 1/10, n/30 FOB Shipping Point
May 9
Paid Vendor A for total amount owed, show any of your calculations, and label your work.
May 11
Customer Z returned 100 Things and received credit
May 15
Received payment from Customer Z for total amount owed, show any of your calculations, and label your work.
Accounts to be used: Purchase (Inventory Account), Purchase Return (Inventory Account), Purchase Discount (Cost of Goods Sold Account), Freight In (Cost of Goods Sold Account), Cost of Goods Sold, Sales, Sales Return, Sales Discount.
Required:
A) Prepare the required journal entries for the above transactions
B) Prepare a partial income statement through Gross Profit
May 1
Purchased 3,000 Things from Vendor A with the terms 2/10, n/30, FOB Shipping Point.
May 3
Received freight bill of $350 for the May 1 transaction.
May 5
Returned 190 Things back to Vendor A for quality issues, received credit from Vendor A
May 7
Sold 1,700 Things to Customer Z, terms 1/10, n/30 FOB Shipping Point
May 9
Paid Vendor A for total amount owed, show any of your calculations, and label your work.
May 11
Customer Z returned 100 Things and received credit
May 15
Received payment from Customer Z for total amount owed, show any of your calculations, and label your work.
Explanation / Answer
(A) Journal Entries
(B) Income Statement
Working Note
Calculation of closing stock
Purchases 3000
Less: Returned 190
Less: Sold 1700
Add: Sales return 10
Closing stock 1210
Date Particulars Debit($) Credit($) May1 Purchases A/c Dr. 25500 To Vendor A A/c 25500 May3 Freight expense A/c Dr. $350 To freight expense payable A/c $350 May5 Vendor A/c Dr. 1615 To purchases Return A/c 1615 May7 Customer Z A/c Dr. 32300 To Sales A/c 32300 May 9 Amount payable to vendor A = 25500-1615 = 23885 Vendor A A/c Dr. 23885 To Cash A/c 23885 May 11 Sales Return A/c Dr. 1900 To Customer Z A/c 1900 May 15 Bank A/c Dr. 30400 To cusomer Z 30400