Phantom Book Warehouse distributes hardcover books to retail stores and extends credit terms of n/30 to all of its customers. Phantom uses a perpetual inventory system and the earnings approach. At the end of May, Phantom had an inventory of 230 books purchased at $7 each. During the month of June, the following merchandise transactions occurred: June 1 Purchased 170 books on account for $7 each Reader’s World Publishers, terms n/30, FOB destination. 2 The correct company paid $85 freight on the June 1 purchase. 3 Sold 190 books on account to Book Nook for $12 each. 6 Received $70 credit for 10 books returned to Reader’s World Publishers. 18 Issued a $48 credit to Book Nook for the return of four damaged books. The books were determined to be no longer saleable and were destroyed. 20 Purchased 140 books on account for $6.50 each from Reader’s World Publishers, terms n/30, FOB shipping point. 21 The correct company paid $70 freight for the July 20 purchase. 27 Sold 100 books on account to Readers Bookstore for $12 each. 28 Granted Readers Bookstore a $180 credit for 15 returned books. These books were restored to inventory. 30 Paid Reader’s World Publishers for the June 1 purchase. 30 Received the balance owing from Book Nook. Instructions Q1 Record the transactions for the month of June for Phantom Book Warehouse. Q2 Create a T account for Merchandise Inventory. Post the opening balance and June’s transactions and calculate the June 30 balance. Q3 Determine the number of books on hand at the end of the month and calculate the average cost per book of the inventory on hand at June30. Q4 Explain how freight terms can affect the selling price, and the cost, of merchandise. Use the transactions on June 1 and 20 between Phantom Book Warehouse and Reader’s World Publishers as part of your explanation.
Phantom Book Warehouse distributes hardcover books to retail stores and extends credit terms of n/30 to all of its customers. Phantom uses a perpetual inventory system and the earnings approach. At the end of May, Phantom had an inventory of 230 books purchased at $7 each. During the month of June, the following merchandise transactions occurred:
|
June 1 |
Purchased 170 books on account for $7 each Reader’s World Publishers, terms n/30, FOB destination. |
|
2 |
The correct company paid $85 freight on the June 1 purchase. |
|
3 |
Sold 190 books on account to Book Nook for $12 each. |
|
6 |
Received $70 credit for 10 books returned to Reader’s World Publishers. |
|
18 |
Issued a $48 credit to Book Nook for the return of four damaged books. The books were determined to be no longer saleable and were destroyed. |
|
20 |
Purchased 140 books on account for $6.50 each from Reader’s World Publishers, terms n/30, FOB shipping point. |
|
21 |
The correct company paid $70 freight for the July 20 purchase. |
|
27 |
Sold 100 books on account to Readers Bookstore for $12 each. |
|
28 |
Granted Readers Bookstore a $180 credit for 15 returned books. These books were restored to inventory. |
|
30 |
Paid Reader’s World Publishers for the June 1 purchase. |
|
30 |
Received the balance owing from Book Nook. |
Instructions
Q1 Record the transactions for the month of June for Phantom Book Warehouse.
Q2 Create a T account for Merchandise Inventory. Post the opening balance and June’s transactions and calculate the June 30 balance.
Q3 Determine the number of books on hand at the end of the month and calculate the average cost per book of the inventory on hand at June30.
Q4 Explain how freight terms can affect the selling price, and the cost, of merchandise. Use the transactions on June 1 and 20 between Phantom Book Warehouse and Reader’s World Publishers as part of your explanation.
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