To determine Gross Method: Under this method, all the purchases are recorded in the books of account without taking into account the trade discount, returns and allowances. T he purchases are to be recorded at full cost. 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, losses and credit all the liabilities, revenues and gains including capital. To decrease the balance of account credit all assets, expenses, 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. Explanation 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, Purchase Cost = Number of Units × Unit Cost per Unit = 2 , 000 × $ 10 = $ 20 , 000 Sold 1,500 units of inventory for $14 on account: Date Account Title and Explanation Post ref Debit ($) 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, Sales = Number of Units Sold × Sales Price Per Unit = 1 , 500 × $ 14 = $ 21 , 000 Date Account Title and Explanation Post ref 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 to 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, Cost of Goods Sold = Number of Units Sold × Cost Price Per Unit = 1 , 500 × $ 10 = $ 15 , 000 Company M returns 125 units because they were unfit as per its needs: Date Account Title and Explanation Post ref Debit ($) Credit ($) May 7 Sales return and allowances 1,750 Account receivable 1,750 (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, Sales Return And Allowances = Number of Units Returned × Sale Price Per Unit = 125 × 14 = $ 1 , 750 Date Account Title and Explanation Post ref Debit ($) Credit ($) May 7 Cost of goods sold 1,250 Merchandise inventory , 1,250 (To record cost of goods sold) Cost of goods sold account is an expense account

9th Edition

ISBN: 9781264899180

Author: Wild

Publisher: MCG

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…

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Chapter 4, Problem 6E

To determine

Gross Method:

Under this method, all the purchases are recorded in the books of account without taking into account the trade discount, returns and allowances. T
he purchases are to be recorded at full cost.

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

Chapter 4 Solutions

FINANCIAL AND MANAGERIAL ACCOUNTING

Ch. 4 - Prob. 1QS Ch. 4 - Prob. 2QS Ch. 4 - Merchandise accounts and computations C2 Use the...Ch. 4 - Computing net invoice amounts P1 Compute the...Ch. 4 - Recording purchases, returns, and discounts taken...Ch. 4 - Prob. 6QS Ch. 4 - Prob. 7QS Ch. 4 - Prob. 8QS Ch. 4 - Prob. 9QS Ch. 4 - Prob. 10QS

Ch. 4 - Prob. 11QS Ch. 4 - Prob. 12QS Ch. 4 - Prob. 13QS Ch. 4 - Prob. 14QS Ch. 4 - Prob. 15QS Ch. 4 - Prob. 16QS Ch. 4 - Prob. 17QS Ch. 4 - Prob. 18QS Ch. 4 - Prob. 19QS Ch. 4 - Prob. 20QS Ch. 4 - Prob. 21QS Ch. 4 - Prob. 22QS Ch. 4 - Prob. 23QS Ch. 4 - Prob. 24QS Ch. 4 - Prob. 25QS Ch. 4 - Prob. 26QS Ch. 4 - Prob. 27QS Ch. 4 - Prob. 28QS Ch. 4 - Prob. 29QS Ch. 4 - Prob. 30QS Ch. 4 - Prob. 31QS Ch. 4 - Prob. 1E Ch. 4 - Prob. 2E Ch. 4 - Exercise 4-3 Recording purchase, purchase returns...Ch. 4 - Prob. 4E Ch. 4 - Prob. 5E Ch. 4 - Exercise 4-4 Recording sales, sales returns and...Ch. 4 - Prob. 7E Ch. 4 - Prob. 8E Ch. 4 - Prob. 9E Ch. 4 - Prob. 10E Ch. 4 - Prob. 11E Ch. 4 - Prob. 12E Ch. 4 - Prob. 13E Ch. 4 - Prob. 14E Ch. 4 - Prob. 15E Ch. 4 - Prob. 16E Ch. 4 - Prob. 17E Ch. 4 - Prob. 18E Ch. 4 - Prob. 19E Ch. 4 - Prob. 20E Ch. 4 - Prob. 21E Ch. 4 - Prob. 22E Ch. 4 - Prob. 23E Ch. 4 - Prob. 24E Ch. 4 - Prob. 25E Ch. 4 - Prob. 26E Ch. 4 - Prob. 27E Ch. 4 - Prob. 28E Ch. 4 - Prob. 29E Ch. 4 - Prob. 1PSA Ch. 4 - Prob. 2PSA Ch. 4 - Prob. 3PSA Ch. 4 - Prob. 4PSA Ch. 4 - Prob. 5PSA Ch. 4 - Prob. 1PSB Ch. 4 - Prob. 2PSB Ch. 4 - Prob. 3PSB Ch. 4 - Prob. 4PSB Ch. 4 - Prob. 5PSB Ch. 4 - Prob. 4SP Ch. 4 - Prob. 1GLP Ch. 4 - The General Ledger tool in connect several of the...Ch. 4 - Prob. 3GLP Ch. 4 - Prob. 1.1AA Ch. 4 - Prob. 1.2AA Ch. 4 - Prob. 1.3AA Ch. 4 - Prob. 1.4AA Ch. 4 - Prob. 2.1AA Ch. 4 - Prob. 2.2AA Ch. 4 - Prob. 2.3AA Ch. 4 - Prob. 3.1AA Ch. 4 - Prob. 3.2AA Ch. 4 - Prob. 3.3AA 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...Ch. 4 - Prob. 6DQ Ch. 4 - Prob. 7DQ Ch. 4 - Prob. 8DQ Ch. 4 - Prob. 1BTN Ch. 4 - COMMUNICATING IN PRACTICE C2 P3 P5 BTN 4-4 You are...Ch. 4 - Prob. 4BTN

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