Journal Entry : It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health. Rules of Journal Entry: ► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital. ► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital. Perpetual Inventory System: The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system. To prepare: Journal entries in the books of Company A.

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Answer 1

Question

Chapter 4, Problem 5E

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital.

► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System:

The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Expert Solution & Answer

Answer to Problem 5E

Solution:

Journal entries in the books of Company A:

Purchased merchandise on account worth $20,000.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 3	Merchandise Inventory	20,000
	Cash		20,000
	(To record purchase of merchandise inventory for cash)

Explanation of Solution

▪ Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account.

▪ Cash is an asset account. Since cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account.

Working note:

Calculation of purchase cost:

$\begin{matrix} Purchase cost = Number of units \times Unit cost per unit \\ = 2, 000 \times $ 10 \\ = $ 20, 000 \end{matrix}$

Sold 1,500 units of inventory for $14 on account:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Account Receivable	21,000
	Sales		21,000
	(To record sales made on account)

• Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.

• Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited.

Working Note:

Calculation of amount of sales:

$\begin{matrix} Sales = Number of units sold \times Sales price per unit \\ = 1, 500 \times $ 14 \\ = $ 21, 000 \end{matrix}$

Record cost of sold goods on May 5.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Cost of goods sold	15,000
	Merchandise inventory		15,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 1, 500 \times $ 10 \\ = $ 15, 000 \end{matrix}$

Company B returns 200 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Sales return and allowances	2,800
	Account receivable		2,800
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = Number of units returned \times Sale price per unit \\ = 200 \times $ 14 \\ = $ 2, 800 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Cost of goods sold	2,000
	Merchandise inventory		2,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 200 \times $ 10 \\ = $ 2, 000 \end{matrix}$

Company B discovered scuffed units and gave credit memorandum to Company A.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 8	Sales return and allowances	600
	Account receivable		600
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable account is to be credited.

Company B found 100 units of wrong color. So, returns 40 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Sales return and allowances	680
	Account receivable		680
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = (\begin{array}{l} (Number of units returned \times Sale price per unit) \\ + Compensation \end{array}) \\ = (40 \times $ 14) + $ 120 \\ = $ 560 + $ 120 \\ = $ 680 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of goods sold	400
	Merchandise inventory		400
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 40 \times $ 10 \\ = $ 400 \end{matrix}$

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Students have asked these similar questions

Palladium, Incorporated recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records. Cost of Goods Sold $ 67,000 Work-in-Process Inventory, Beginning 11,300 Work-in-Process Inventory, Ending 9,400 Selling and Administrative Expense 16,000 Finished Goods Inventory, Ending 16,100 Finished Goods Inventory, Beginning ?question mark Direct Materials Used ?question mark Factory Overhead Applied 12,400 Operating Income 14,220 Direct Materials Inventory, Beginning 11,180 Direct Materials Inventory, Ending 6,140 Cost of Goods Manufactured 61,880 Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Palladium, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount in the finished goods inventory at the beginning of the year?

Which of the following statements is incorrect regarding manufacturing overhead? Multiple Choice Manufacturing overhead includes both fixed and variable costs. Manufacturing overhead is an indirect cost to units or products. Actual overhead costs are used in the cost accounting process. Actual overhead costs tend to remain relatively constant over various output levels.

Palladium, Incorporated recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records. Cost of Goods Sold $ 72,500 Work-in-Process Inventory, Beginning 13,500 Work-in-Process Inventory, Ending 10,500 Selling and Administrative Expense 18,750 Finished Goods Inventory, Ending 19,125 Finished Goods Inventory, Beginning ?question mark Direct Materials Used ?question mark Factory Overhead Applied 13,500 Operating Income 14,825 Direct Materials Inventory, Beginning 11,675 Direct Materials Inventory, Ending 6,525 Cost of Goods Manufactured 67,050 Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Palladium, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of direct materials purchased?

Answer 2

Question

Chapter 4, Problem 5E

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital.

► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System:

The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Expert Solution & Answer

Answer to Problem 5E

Solution:

Journal entries in the books of Company A:

Purchased merchandise on account worth $20,000.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 3	Merchandise Inventory	20,000
	Cash		20,000
	(To record purchase of merchandise inventory for cash)

Explanation of Solution

▪ Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account.

▪ Cash is an asset account. Since cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account.

Working note:

Calculation of purchase cost:

$\begin{matrix} Purchase cost = Number of units \times Unit cost per unit \\ = 2, 000 \times $ 10 \\ = $ 20, 000 \end{matrix}$

Sold 1,500 units of inventory for $14 on account:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Account Receivable	21,000
	Sales		21,000
	(To record sales made on account)

• Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.

• Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited.

Working Note:

Calculation of amount of sales:

$\begin{matrix} Sales = Number of units sold \times Sales price per unit \\ = 1, 500 \times $ 14 \\ = $ 21, 000 \end{matrix}$

Record cost of sold goods on May 5.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Cost of goods sold	15,000
	Merchandise inventory		15,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 1, 500 \times $ 10 \\ = $ 15, 000 \end{matrix}$

Company B returns 200 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Sales return and allowances	2,800
	Account receivable		2,800
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = Number of units returned \times Sale price per unit \\ = 200 \times $ 14 \\ = $ 2, 800 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Cost of goods sold	2,000
	Merchandise inventory		2,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 200 \times $ 10 \\ = $ 2, 000 \end{matrix}$

Company B discovered scuffed units and gave credit memorandum to Company A.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 8	Sales return and allowances	600
	Account receivable		600
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable account is to be credited.

Company B found 100 units of wrong color. So, returns 40 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Sales return and allowances	680
	Account receivable		680
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = (\begin{array}{l} (Number of units returned \times Sale price per unit) \\ + Compensation \end{array}) \\ = (40 \times $ 14) + $ 120 \\ = $ 560 + $ 120 \\ = $ 680 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of goods sold	400
	Merchandise inventory		400
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 40 \times $ 10 \\ = $ 400 \end{matrix}$

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Answer 3

Question

Chapter 4, Problem 5E

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital.

► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System:

The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Expert Solution & Answer

Answer to Problem 5E

Solution:

Journal entries in the books of Company A:

Purchased merchandise on account worth $20,000.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 3	Merchandise Inventory	20,000
	Cash		20,000
	(To record purchase of merchandise inventory for cash)

Explanation of Solution

▪ Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account.

▪ Cash is an asset account. Since cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account.

Working note:

Calculation of purchase cost:

$\begin{matrix} Purchase cost = Number of units \times Unit cost per unit \\ = 2, 000 \times $ 10 \\ = $ 20, 000 \end{matrix}$

Sold 1,500 units of inventory for $14 on account:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Account Receivable	21,000
	Sales		21,000
	(To record sales made on account)

• Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.

• Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited.

Working Note:

Calculation of amount of sales:

$\begin{matrix} Sales = Number of units sold \times Sales price per unit \\ = 1, 500 \times $ 14 \\ = $ 21, 000 \end{matrix}$

Record cost of sold goods on May 5.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Cost of goods sold	15,000
	Merchandise inventory		15,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 1, 500 \times $ 10 \\ = $ 15, 000 \end{matrix}$

Company B returns 200 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Sales return and allowances	2,800
	Account receivable		2,800
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = Number of units returned \times Sale price per unit \\ = 200 \times $ 14 \\ = $ 2, 800 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Cost of goods sold	2,000
	Merchandise inventory		2,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 200 \times $ 10 \\ = $ 2, 000 \end{matrix}$

Company B discovered scuffed units and gave credit memorandum to Company A.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 8	Sales return and allowances	600
	Account receivable		600
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable account is to be credited.

Company B found 100 units of wrong color. So, returns 40 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Sales return and allowances	680
	Account receivable		680
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = (\begin{array}{l} (Number of units returned \times Sale price per unit) \\ + Compensation \end{array}) \\ = (40 \times $ 14) + $ 120 \\ = $ 560 + $ 120 \\ = $ 680 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of goods sold	400
	Merchandise inventory		400
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 40 \times $ 10 \\ = $ 400 \end{matrix}$

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Answer 4

Question

Chapter 4, Problem 5E

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital.

► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System:

The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Expert Solution & Answer

Answer to Problem 5E

Solution:

Journal entries in the books of Company A:

Purchased merchandise on account worth $20,000.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 3	Merchandise Inventory	20,000
	Cash		20,000
	(To record purchase of merchandise inventory for cash)

Explanation of Solution

▪ Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account.

▪ Cash is an asset account. Since cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account.

Working note:

Calculation of purchase cost:

$\begin{matrix} Purchase cost = Number of units \times Unit cost per unit \\ = 2, 000 \times $ 10 \\ = $ 20, 000 \end{matrix}$

Sold 1,500 units of inventory for $14 on account:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Account Receivable	21,000
	Sales		21,000
	(To record sales made on account)

• Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.

• Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited.

Working Note:

Calculation of amount of sales:

$\begin{matrix} Sales = Number of units sold \times Sales price per unit \\ = 1, 500 \times $ 14 \\ = $ 21, 000 \end{matrix}$

Record cost of sold goods on May 5.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Cost of goods sold	15,000
	Merchandise inventory		15,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 1, 500 \times $ 10 \\ = $ 15, 000 \end{matrix}$

Company B returns 200 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Sales return and allowances	2,800
	Account receivable		2,800
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = Number of units returned \times Sale price per unit \\ = 200 \times $ 14 \\ = $ 2, 800 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Cost of goods sold	2,000
	Merchandise inventory		2,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 200 \times $ 10 \\ = $ 2, 000 \end{matrix}$

Company B discovered scuffed units and gave credit memorandum to Company A.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 8	Sales return and allowances	600
	Account receivable		600
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable account is to be credited.

Company B found 100 units of wrong color. So, returns 40 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Sales return and allowances	680
	Account receivable		680
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = (\begin{array}{l} (Number of units returned \times Sale price per unit) \\ + Compensation \end{array}) \\ = (40 \times $ 14) + $ 120 \\ = $ 560 + $ 120 \\ = $ 680 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of goods sold	400
	Merchandise inventory		400
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 40 \times $ 10 \\ = $ 400 \end{matrix}$

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Answer 5

Chapter 4, Problem 5E

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital.

► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System:

The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Expert Solution & Answer

Answer to Problem 5E

Solution:

Journal entries in the books of Company A:

Purchased merchandise on account worth $20,000.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 3	Merchandise Inventory	20,000
	Cash		20,000
	(To record purchase of merchandise inventory for cash)

Explanation of Solution

▪ Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account.

▪ Cash is an asset account. Since cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account.

Working note:

Calculation of purchase cost:

$\begin{matrix} Purchase cost = Number of units \times Unit cost per unit \\ = 2, 000 \times $ 10 \\ = $ 20, 000 \end{matrix}$

Sold 1,500 units of inventory for $14 on account:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Account Receivable	21,000
	Sales		21,000
	(To record sales made on account)

• Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.

• Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited.

Working Note:

Calculation of amount of sales:

$\begin{matrix} Sales = Number of units sold \times Sales price per unit \\ = 1, 500 \times $ 14 \\ = $ 21, 000 \end{matrix}$

Record cost of sold goods on May 5.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Cost of goods sold	15,000
	Merchandise inventory		15,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 1, 500 \times $ 10 \\ = $ 15, 000 \end{matrix}$

Company B returns 200 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Sales return and allowances	2,800
	Account receivable		2,800
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = Number of units returned \times Sale price per unit \\ = 200 \times $ 14 \\ = $ 2, 800 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Cost of goods sold	2,000
	Merchandise inventory		2,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 200 \times $ 10 \\ = $ 2, 000 \end{matrix}$

Company B discovered scuffed units and gave credit memorandum to Company A.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 8	Sales return and allowances	600
	Account receivable		600
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable account is to be credited.

Company B found 100 units of wrong color. So, returns 40 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Sales return and allowances	680
	Account receivable		680
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = (\begin{array}{l} (Number of units returned \times Sale price per unit) \\ + Compensation \end{array}) \\ = (40 \times $ 14) + $ 120 \\ = $ 560 + $ 120 \\ = $ 680 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of goods sold	400
	Merchandise inventory		400
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 40 \times $ 10 \\ = $ 400 \end{matrix}$

Answer 6

Chapter 4, Problem 5E

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital.

► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System:

The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Expert Solution & Answer

Answer to Problem 5E

Solution:

Journal entries in the books of Company A:

Purchased merchandise on account worth $20,000.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 3	Merchandise Inventory	20,000
	Cash		20,000
	(To record purchase of merchandise inventory for cash)

Explanation of Solution

▪ Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account.

▪ Cash is an asset account. Since cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account.

Working note:

Calculation of purchase cost:

$\begin{matrix} Purchase cost = Number of units \times Unit cost per unit \\ = 2, 000 \times $ 10 \\ = $ 20, 000 \end{matrix}$

Sold 1,500 units of inventory for $14 on account:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Account Receivable	21,000
	Sales		21,000
	(To record sales made on account)

• Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.

• Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited.

Working Note:

Calculation of amount of sales:

$\begin{matrix} Sales = Number of units sold \times Sales price per unit \\ = 1, 500 \times $ 14 \\ = $ 21, 000 \end{matrix}$

Record cost of sold goods on May 5.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Cost of goods sold	15,000
	Merchandise inventory		15,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 1, 500 \times $ 10 \\ = $ 15, 000 \end{matrix}$

Company B returns 200 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Sales return and allowances	2,800
	Account receivable		2,800
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = Number of units returned \times Sale price per unit \\ = 200 \times $ 14 \\ = $ 2, 800 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Cost of goods sold	2,000
	Merchandise inventory		2,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 200 \times $ 10 \\ = $ 2, 000 \end{matrix}$

Company B discovered scuffed units and gave credit memorandum to Company A.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 8	Sales return and allowances	600
	Account receivable		600
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable account is to be credited.

Company B found 100 units of wrong color. So, returns 40 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Sales return and allowances	680
	Account receivable		680
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = (\begin{array}{l} (Number of units returned \times Sale price per unit) \\ + Compensation \end{array}) \\ = (40 \times $ 14) + $ 120 \\ = $ 560 + $ 120 \\ = $ 680 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of goods sold	400
	Merchandise inventory		400
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 40 \times $ 10 \\ = $ 400 \end{matrix}$

Answer 7

Chapter 4, Problem 5E

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

► To increase the balance of account one needs to debit assets, expenses and losses and credit all the liabilities, revenues and gains including capital.

► To decrease the balance of account credit all assets, expenses and losses and debit all liabilities, revenues and gains including capital.

Perpetual Inventory System:

The inventory system in which the inventory accounts are updated on every single purchase or sale in inventory. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

To prepare: Journal entries in the books of Company A.

Answer 8

Expert Solution & Answer

Answer to Problem 5E

Solution:

Journal entries in the books of Company A:

Purchased merchandise on account worth $20,000.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 3	Merchandise Inventory	20,000
	Cash		20,000
	(To record purchase of merchandise inventory for cash)

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

▪ Inventory is an asset account. Since the Inventory is purchased, the value of assets is increased. So, debit the Inventory account.

▪ Cash is an asset account. Since cash is paid for purchase of inventory, it is to be reduced. Therefore, credit cash account.

Working note:

Calculation of purchase cost:

$\begin{matrix} Purchase cost = Number of units \times Unit cost per unit \\ = 2, 000 \times $ 10 \\ = $ 20, 000 \end{matrix}$

Sold 1,500 units of inventory for $14 on account:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Account Receivable	21,000
	Sales		21,000
	(To record sales made on account)

• Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.

• Sales are a revenue account. Since sales are made, so it needs to be increased. Therefore, sales account is to be credited.

Working Note:

Calculation of amount of sales:

$\begin{matrix} Sales = Number of units sold \times Sales price per unit \\ = 1, 500 \times $ 14 \\ = $ 21, 000 \end{matrix}$

Record cost of sold goods on May 5.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 5	Cost of goods sold	15,000
	Merchandise inventory		15,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 1, 500 \times $ 10 \\ = $ 15, 000 \end{matrix}$

Company B returns 200 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Sales return and allowances	2,800
	Account receivable		2,800
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = Number of units returned \times Sale price per unit \\ = 200 \times $ 14 \\ = $ 2, 800 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 7	Cost of goods sold	2,000
	Merchandise inventory		2,000
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 200 \times $ 10 \\ = $ 2, 000 \end{matrix}$

Company B discovered scuffed units and gave credit memorandum to Company A.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 8	Sales return and allowances	600
	Account receivable		600
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable account is to be credited.

Company B found 100 units of wrong color. So, returns 40 units because they were unfit as per its needs:

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Sales return and allowances	680
	Account receivable		680
	(To record sales return)

• Sales return and allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, sales return and allowances account is to be debited.

• Account receivable is an asset account. Since account receivable is getting reduced because of sales return so asset is to be reduced. Therefore account receivable is to be credited.

Working Note:

Calculation of sales return and allowances:

$\begin{matrix} Sales return and allowances = (\begin{array}{l} (Number of units returned \times Sale price per unit) \\ + Compensation \end{array}) \\ = (40 \times $ 14) + $ 120 \\ = $ 560 + $ 120 \\ = $ 680 \end{matrix}$

Record cost of goods returned.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of goods sold	400
	Merchandise inventory		400
	(To record cost of goods sold)

• Cost of goods sold account is an expense account. Since expense is to be increased, expense is increased. Therefore, Cost of goods sold account is debited.

• Merchandise inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, merchandise inventory account is to be credited.

Working note:

Calculation of cost of goods sold:

$\begin{matrix} Cost of goods sold = Number of units sold \times Cost price per unit \\ = 40 \times $ 10 \\ = $ 400 \end{matrix}$

Answer 12

Ch. 4 - Prob. 1MCQ Ch. 4 - A company purchased $4,500 0f merchandise on May 1...Ch. 4 - Prob. 3MCQ Ch. 4 - Prob. 4MCQ Ch. 4 - Prob. 5MCQ Ch. 4 - Prob. 1DQ Ch. 4 - Prob. 2DQ Ch. 4 - Prob. 3DQ Ch. 4 - Prob. 4DQ Ch. 4 - How does a company that uses a perpetual inventory...

Answer to Problem 5E

Explanation of Solution

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