Exercise-6 (Gross method of recording purchases)
Posted in: Inventory costing methods (exercises)
The United company made the following transactions during the month of March:
- Mar.05: Purchased merchandise worth $21,600; credit terms were 2/20, n/45.
- Mar.08: Returned merchandise to vendor worth $5,000 (gross).
- Mar.20: Payment made for merchandise purchased on March 5.
The company uses gross method of recording purchases.
Required: Prepare journal entries to record the above transactions assuming the United company uses:
- Perpetual inventory method
- Periodic inventory method
Solution:
(1) Journal entries if perpetual inventory method is used:
*21,600 × 0.02 = 432
**21,600 – 432 = 21,168
(2) Journal entries if periodic inventory method is used:
*21,600 × 0.02 = $432
**21,600 -432 = $21,168
5 Comments on Exercise-6 (Gross method of recording purchases)
Hello guys i have quasion on the above answer.
How the united company can pay $21,160 on Mar 20? because $5000 worth of marchandise is aredy returned to the seller, it should pay (- )$5000 and puchase dicount.
let’s me know if i am wong.
I totally agree with your thought. It doesnt make sense to me since $5000 returned before making payment. It’s true that there should have deduction of that returning on date of payment. Please help me to clarify it!
The merchandise returned on March 8 were not from the merchandise purchased on March 5. Those merchandise belonged to another vendor.
I need your assistance to solve this problem ?
i need answer for beginning inventory on Jan1,2012 ABC company had 500 units merchandise that costs $ 88 per unit. the ff transactions were completed during 2012.
March 15 ,purchased on credit 460 units of merchandise at $ 50 per unit. March 25, returned 30 defective units from February 5 purchases to the supplier. April 25 ,purchased for cash 500 units of merchandise at $ 19 per unit May 19 ,sold 750 units of merchandise for cash at a price of $200 per unit for march purchases.December 31,680 units are left on hand ,40 unit from March 15 purchases. prepare general journal for both periodic and perpetual inventory system
Periodic:
March 15 Purchases 23000 (460@50)
Accounts Payable 23000
March 25 Accounts Payable 2640 (30@88)
Purchases Returns and Allowances 2640
April 25 Purchases 8500 (500@19)
Cash 8500
May 19 Cash 150000 (750@200)
Sales 150000
December 31 Inventory 20020 (40@88+140@50+500@19)
Cost of Goods Sold 53840 (430@88+320@50)
Purchases Returns and Allowances 2640
Purchases 32500 (460@50+500@19)
Inventory 44000
Is my answer correct?