Chapter 5, Problem 1BPSB

To determine

Concept Introduction:

Journal Entries:

A journal entry can be defined as recording of a transaction in the books of accounts. Every transaction has two effects, so according to the effects the journal entries are recorded. There is debit and credit in every journal entry. On the basis of the basic accounting rules for assets, liabilities, revenues or incomes, the debit and credit are decided.

To prepare:

Journal entries for Yarvelle Company for merchandising transactions.

Answer to Problem 1BPSB

Solution:

The journal entries for Yarvelle Company for merchandising transactions are −

Date	Accounts Descriptions	Debit	Credit
May-02	Merchandise Inventory	10,000
	Accounts Payable - Havel		10,000
	(To record purchase of merchandise inventory)
May-04	Accounts Receivables - Heather	11,000
	Sales		11,000
	(To record sales of inventory)
May-04	Cost of Goods sold	5,600
	Merchandise Inventory		5,600
	(To record cost of goods sold for the sales on May 4)
May-05	Merchandise Inventory	250
	Cash		250
	(To record payment of freight on merchandise inventory)
May-09	Cash	2,500
	Sales		2,500
	(To record cash sales of inventory)
May-10	Merchandise Inventory	3,650
	Accounts Payable - Duke		3,650
	(To record purchase of merchandise inventory)
May-12	Accounts Payable - Duke	400
	Merchandise Inventory		400
	(To record purchase return to Duke)
May-14	Cash	10,780
	Sales Discounts	220
	Accounts Receivables - Heather		11,000
	(To record collection of cash within discount period)
May-17	Accounts Payable - Havel	10,000
	Merchandise Inventory		100
	Cash		9,900
	(To record payment of accounts payable within discount period)
May-20	Accounts Receivable - Tameron	2,800
	Sales		2,800
	(To record sales of inventory)
May-20	Cost of goods sold	1,450
	Merchandise Inventory		1,450
	(To record cost of goods sold for the sales on May 20)
May-22	Merchandise Inventory	400
	Accounts Receivable - Tameron		400
	(To record issue of credit memo to Tameron)
May-25	Accounts Payable - Duke	3250
	Merchandise Inventory		65
	Cash		3185
May-30	Cash	2,352
	Sales Discounts	48
	Accounts Receivable - Tameron		2400
	(To record cash receipt from Tameron within discount period)
May-31	Accounts Receivables - Heather Co.	7,200
	Sales		7,200
	(To record sales of inventory)
	Cost of Goods sold	3,600
	Merchandise Inventory		3,600
	(To record cost of goods sold for the sales on May 31)

Explanation of Solution

The above journal entries can be explained as −

May 2: The merchandise is purchased from Havel Co. So merchandise is debited and Accounts payable − Havel co. is credited.

May 4: The merchandised inventory is sold to Heather Co. so sales are recorded with a credit and since, the goods are sold on account, so Accounts receivable − Heather Co. is debited.

May 4: The cost of goods sold for sales on May 4 has been recorded. Thus, the merchandise inventory is credited as it is getting reduce and costs of goods sold is debited as it is an expense.

May 5: The freight expense of $ 250 is paid on the purchases of May 2, thus added to the merchandise costs. So, merchandise is increased with a debit and cash is credited.

May 9: The goods are sold on cash basis, thus cash is debited and sales revenue is credited.

May 10: The merchandise is purchased from Duke Co. So merchandise is debited and Accounts payable − Duke Co. is credited

May 12: The purchase returns are recorded in this entry. Thus, the Accounts payable − Duke Co. is debited and merchandise inventory is credited.

May 14: The balance due from Heather Co. is received after deducting the sales discounts. The sales discounts are calculated as−

The given information is −

• Credit sales = $ 11,000
• Terms of credit sales = 2/10, n/60
• Discount rate = 2 % (if it is paid within a period of 10 days)

  $\begin{array}{l}Salesdiscounts=CreditSalesXDiscountrate\hfill \\ Salesdiscounts=\$11,000X2\%\hfill \\ Salesdiscounts=\$220\hfill \end{array}$

Thus, the sales discount will be = $ 220
The amount of cash will be calculated as −

  $\begin{array}{l}Cashtobe\text{ received }=CreditSales–SalesDiscount\hfill \\ Cashtobe\text{ received }=\$11,000-\$220\hfill \\ Cashtobe\text{ received }=\$\text{ 10},780\hfill \end{array}$

Thus, the cash to be received = $ 10,780.

May 17:The balance after deducting the discounts is paid to Havel Co. for the merchandise purchased on May 2. The discount received will be recorded under merchandise inventory. The discount will be calculated as −

The given information is −

• Credit purchases = $ 10,000
• Terms of credit sales = 1/10, n/30
• Discount rate = 1 % (if it is paid within a period of 10 days)

  $\begin{array}{l}Discounts=Credit\text{ Purchases }XDiscountrate\hfill \\ Discounts=\$10,000X\text{ 1 }\%\hfill \\ Discounts=\$\text{ 10}0\hfill \end{array}$

Thus, the sales discount will be = $ 100
The amount of cash will be calculated as −

  $\begin{array}{l}CashtobePaid=Credit\text{ Purchase}s–Discount\hfill \\ CashtobePaid=\$10,000-\$\text{ 10}0\hfill \\ CashtobePaid=\$\text{ 9},900\hfill \end{array}$

Thus, the cash to be paid = $ 9,900.

May 20: The merchandised inventory is sold to Tameron Co. so sales are recorded with a credit and since, the goods are sold on account, so Accounts receivable − Tameron Co. is debited.

May 20: The cost of goods sold for sales on May 20 has been recorded. Thus, the merchandise inventory is credited as it is getting reduce and costs of goods sold is debited as it is an expense.

May 22: The sales returns are recorded in this entry, thus, merchandise inventory is debited and Accounts receivable − Tameron Co. is credited.
May 25: The balance after deducting the discounts is paid to Duke Co. for the merchandise purchased on May 10. The credit memo received from Duke will also be deducted from the balance.

  $\begin{array}{l}BalanceofAccountspayable=CreditPurchases–Amountofcreditmemo\hfill \\ BalanceofAccountspayable=\$3,650-\$400\hfill \\ BalanceofAccountspayable=\$3,250\hfill \end{array}$

The discount received will be recorded under merchandise inventory. The discount will be calculated as −
The given information is −

• Credit purchases balance = $ 3,250
• Terms of credit sales = 2/15, n/360
• Discount rate = 2 % (if it is paid within a period of 15 days)

  $\begin{array}{l}Discounts=Credit\text{ Purchases }XDiscountrate\hfill \\ Discounts=\$\text{ 3},250X\text{ 2 }\%\hfill \\ Discounts=\$65\hfill \end{array}$

Thus, the discount will be = $ 65
The amount of cash will be calculated as −

  $\begin{array}{l}CashtobePaid=Credit\text{ Purchase}s–Discount\hfill \\ CashtobePaid=\$\text{ 3},250-\$\text{ 65}\hfill \\ CashtobePaid=\$\text{ 3,185}\hfill \end{array}$

Thus, the cash to be paid = $ 3,185.

May 30: The balance due from TameronCo. is received after deducting the sales discounts.
The balance will be calculated as −

  $\begin{array}{l}BalanceofAccounts\text{ receiva}ble=CreditSales–Amountofcreditmemo\hfill \\ BalanceofAccounts\text{ receiva}ble=\$\text{ 2},800-\$400\hfill \\ BalanceofAccounts\text{ receiva}ble=\$\text{ 2},400\hfill \end{array}$

The sales discounts are calculated as −
The given information is −

• Credit sales balance = $ 2,400
• Terms of credit sales = 2/15, n/60
• Discount rate = 2 % (if it is paid within a period of 15 days)

  $\begin{array}{l}Salesdiscounts=CreditSalesXDiscountrate\hfill \\ Salesdiscounts=\$\text{ 2},400X2\%\hfill \\ Salesdiscounts=\$\text{ 48}0\hfill \end{array}$

Thus, the sales discount will be = $ 480
The amount of cash will be calculated as −

  $\begin{array}{l}Cashtobe\text{ received }=CreditSales\text{ balance}–SalesDiscount\hfill \\ Cashtobe\text{ received }=\$\text{ 2},400-\$\text{ 48}\hfill \\ Cashtobe\text{ received }=\$\text{ 2,352}\hfill \end{array}$

Thus, the cash to be received = $ 2,352.

May 31:The merchandised inventory is sold to Heather Co. so sales are recorded with a credit and since, the goods are sold on account, so Accounts receivable − Heather Co. is debited.

May 31: The cost of goods sold for sales on May 31 has been recorded. Thus, the merchandise inventory is credited as it is getting reduce and costs of goods sold is debited as it is an expense.

Conclusion

Thus, the journal entries for Yarvelle Company have been prepared.