Chapter 5, Problem 5.2BPR

Sales-related transactions using perpetual inventory system

The following selected transactions were completed by Green Lawn Sup plies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers:

July 1.	Sold merchandise on account to Landscapes Co., $33,450, terms FOB shipping point, n/eom. The cost of the goods sold was $20,000.
2.	Sold merchandise for $86,000 plus 8% sales tax to retail cash customers. The cost of the goods sold was $51,600.
5.	Sold merchandise on account to Peacock Company, $17,500, terms FOB destination, 1/10, n/30. The cost of the goods sold was $10,000.
8.	Sold merchandise for $112,000 plus 8% sales tax to retail customers who used VISA cards. The cost of the goods sold was $67,200.
13.	Sold merchandise to customers who used MasterCard cards, $96,000. The cost of the goods sold was $57,600.
14.	Sold merchandise on account to Loeb Co., $16,000, terms FOB shipping point, 1/10, n/30. The cost of the goods sold was $9,000.
15.	Received check for amount due from Peacock Company for sale on July 5.
16.	Issued credit memo for $3,000 to Loeb Co. for merchandise returned from the sale on July 14, The cost of the merchandise returned was $1,800.
18.	Sold merchandise on account to Jennings Company, $11,350, terms FOB shipping point, 2/10, n/30. Paid $475 for freight and added it to the invoice. The cost of the goods sold was $6,800.
24.	Received check for amount due from Loeb Co. for sale on July 14 less credit memo of July 16.
28.	Received check for amount due from Jennings Company for sale of July 18.
31.	Paid Black Lab Delivery Service $8,550 for merchandise delivered during July to customers under shipping terms of FOB destination.
31.	Received check for amount due from Landscapes Co. for sale of July 1.
Aug. 3.	Paid Hays Federal Bank $3,770 for service fees for handling MasterCard and VISA sales during July.
10.	Paid $41,260 to state sales tax division for taxes owed on sales.

Instructions

Journalize the entries to record the transactions of Green Lawn Supplies Co.

To determine

Sales is an activity of selling the  inventory of a business.

To Record: The sale transactions of the company.

Answer to Problem 5.2BPR

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 1	Accounts receivable	33,450
	Sales Revenue		33,450
	(To record the sale of inventory on account)

Table (1)

Explanation of Solution

Explanation

• Accounts Receivable is an asset and it is increased by $33,450. Therefore, debit accounts receivable with $33,450.
• Sales revenue is revenue and it increases the value of equity by $33,450. Therefore, credit sales revenue with $33,450.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 1	Cost of  Sold	20,000
	Inventory		20,000
	(To record the cost of goods sold)

Table (2)

Explanation

• Cost of  sold is an expense account and it decreases the value of equity by $20,000. Therefore, debit cost of  sold account with $20,000.
• Inventory is an asset and it is decreased by $20,000. Therefore, credit inventory account with $20,000.

Record the journal entry for the sale of inventory for cash.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 2	Cash	92,880 (2)
	Sales Revenue		86,000
	Sales Tax Payable		6,880 (1)
	(To record the sale of inventory for cash)

Table (3)

Working Notes:

Calculate the amount of sales tax payable.

Sales revenue = $86,000

Sales tax percentage = 8%

$\begin{array}{c}\text{Sales tax payable = }\left(\text{Sales}\times \text{Sales tax percentage}\right)\\ \text{=}\left(\text{Sales}\times 6\%\right)\\ \text{= }\left(\$86,000\times 8\%\right)\\ \text{= \$6,880}\end{array}$ (1)

Calculate the amount of cash received.

Sales revenue = $86,000

Sales tax payable = $6,880 (1)

$\begin{array}{c}\text{Cash received = }\left(\text{Sales}+\text{Sales tax payable}\right)\\ \text{=}\$86,000+\$6,880\\ \text{= \$92,880}\end{array}$ (2)

Explanation

• Cash is an asset and it is increased by $92,880. Therefore, debit cash account with $92,880.
• Sales revenue is revenue and it increases the value of equity by $86,000. Therefore, credit sales revenue with $86,000.
• Sales tax payable is a liability and it is increased by $6,880. Therefore, credit sales tax payable account with $6,880.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 2	Cost of  Sold	51,600
	Inventory		51,600
	(To record the cost of goods sold)

Table (4)

Explanation

• Cost of  sold is an expense account and it decreases the value of equity by $51,600. Therefore, debit cost of  sold account with $51,600.
• Inventory is an asset and it is decreased by $51,600. Therefore, credit inventory account with $51,600.

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 5	Accounts receivable	17,325 (3)
	Sales Revenue		17,325
	(To record the sale of inventory on account)

Table (5)

Working Note:

Calculate the amount of accounts receivable.

Sales = $17,500

Discount percentage = 1%

$\begin{array}{c}\text{Amount of accounts receivable}\}\text{ = }\left(\text{Sales}-\text{Discount}\right)\\ \text{=}\text{Sales}-\left(\text{Sales}\times 1\%\right)\\ \text{= \$17,500 – }\left(\$17,500\times 1\%\right)\\ \text{= \$17,500}-\$175\\ =\$17,325\end{array}$ (3)

Explanation

• Accounts Receivable is an asset and it is increased by $17,325. Therefore, debit accounts receivable with $17,325.
• Sales revenue is revenue and it increases the value of equity by $17,325. Therefore, credit sales revenue with $17,325.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 5	Cost of  Sold	10,000
	Inventory		10,000
	(To record the cost of goods sold)

Table (6)

Explanation

• Cost of  sold is an expense account and it decreases the value of equity by $10,000. Therefore, debit cost of  sold account with $10,000.
• Inventory is an asset and it is decreased by $10,000. Therefore, credit inventory account with $10,000.

Record the journal entry for the sale of inventory for cash.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 8	Cash	120,960 (5)
	Sales Revenue		112,000
	Sales Tax Payable		8,960 (4)
	(To record the sale of inventory for cash)

Table (7)

Working Notes:

Calculate the amount of sales tax payable.

Sales revenue = $112,000

Sales tax percentage = 8%

$\begin{array}{c}\text{Sales tax payable = }\left(\text{Sales}\times \text{Sales tax percentage}\right)\\ \text{=}\left(\text{Sales}\times 6\%\right)\\ \text{= }\left(\$112,000\times 8\%\right)\\ \text{= \$8,960}\end{array}$ (4)

Calculate the amount of cash received.

Sales revenue = $112,000

Sales tax payable = $8,960 (4)

$\begin{array}{c}\text{Cash received = }\left(\text{Sales}+\text{Sales tax payable}\right)\\ \text{=}\$112,000+\$8,960\\ \text{= \$120,960}\end{array}$(5)

Explanation

• Cash is an asset and it is increased by $120,960. Therefore, debit cash account with $120,960.
• Sales revenue is revenue and it increases the value of equity by $112,000. Therefore, credit sales revenue with $112,000.
• Sales tax payable is a liability and it is increased by $8,960. Therefore, credit sales tax payable account with $8,960.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 8	Cost of  Sold	67,200
	Inventory		67,200
	(To record the cost of goods sold)

Table (8)

Explanation

• Cost of  sold is an expense account and it decreases the value of equity by $67,200. Therefore, debit cost of  sold account with $67,200.
• Inventory is an asset and it is decreased by $67,200. Therefore, credit inventory account with $67,200.

Record the journal entry for the sale of inventory for cash.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 13	Cash	96,000
	Sales Revenue		96,000
	(To record the sale of inventory for cash)

Table (9)

Explanation

• Cash is an asset and it is increased by $96,000. Therefore, debit cash account with $96,000.
• Sales revenue is revenue and it increases the value of equity by $96,000. Therefore, credit sales revenue with $96,000.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 13	Cost of  Sold	57,600
	Inventory		57,600
	(To record the cost of goods sold)

Table (10)

Explanation

• Cost of  sold is an expense account and it decreases the value of equity by $57,600. Therefore, debit cost of  sold account with $57,600.
• Inventory is an asset and it is decreased by $57,600. Therefore, credit inventory account with $57,600.

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 14	Accounts receivable	15,840 (6)
	Sales Revenue		15,840
	(To record the sale of inventory on account)

Table (11)

Working Note:

Calculate the amount of accounts receivable.

Sales = $16,000

Discount percentage = 1%

$\begin{array}{c}\text{Amount of accounts receivable}\}\text{ = }\left(\text{Sales}-\text{Discount}\right)\\ \text{=}\text{Sales}-\left(\text{Sales}\times 1\%\right)\\ \text{= \$16,000 – }\left(\$16,000\times 1\%\right)\\ \text{= \$16,000}-\$160\\ =\$15,840\end{array}$ (6)

Explanation

• Accounts Receivable is an asset and it is increased by $15,840. Therefore, debit accounts receivable with $15,840.
• Sales revenue is revenue and it increases the value of equity by $15,840. Therefore, credit sales revenue with $15,840.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 14	Cost of  Sold	9,000
	Inventory		9,000
	(To record the cost of goods sold)

Table (12)

Explanation

• Cost of  sold is an expense account and it decreases the value of equity by $9,000. Therefore, debit cost of  sold account with $9,000.
•  Inventory is an asset and it is decreased by $9,000. Therefore, credit inventory account with $9,000.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 15	Cash	17,325
	Accounts Receivable		17,325
	(To record the receipt of cash against accounts receivables)

Table (13)

Explanation

• Cash is an asset and it is increased by $17,325. Therefore, debit cash account with $17,325.
• Accounts Receivable is an asset and it is increased by $17,325. Therefore, debit accounts receivable with $17,325.

Record the journal entry for sales return.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
July 16	Customer Refunds Payable		2,970 (7)
	Accounts Receivable			2,970
	(To record sales returns)

Table (14)

Calculate the amount of refund owed to the customer.

Sales return = $3,000

Discount percentage = 1%

$\begin{array}{c}\text{Amount of refund owed to customer = Sales}\text{Return}-\text{Discount}\\ =\text{Sales}\text{return}-\left(\text{Sales}\text{return}\times \text{discount}\right)\\ \text{= \$3,000}-\left(\$3,000\times 1\%\right)\\ =\$3,000-\$30\\ =\$2,970\end{array}$ (7)

Explanation:

• Customer refunds payable is a liability account and it is decreased by $2,970. Therefore, debit customer refunds payable account with $2,970.
• Accounts Receivable is an asset and it is decreased by $2,970. Therefore, credit account receivable with $2,970.

Record the journal entry for the return of the .

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 16	Inventory	1,800
	Estimated Returns Inventory		1,800
	(To record the return of the )

Table (15)

Explanation

•  Inventory is an asset and it is increased by $1,800. Therefore, debit inventory account with $1,800.
• Estimated retunrs inventory is an expense account and it increases the value of equity by $1,800. Therefore, credit estimated returns inventory account with $1,800.

Record the journal entry for the sale of inventory on account.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 18	Accounts receivable	11,123 (8)
	Sales Revenue		11,123
	(To record the sale of inventory on account)

Table (16)

Working Note:

Calculate the amount of accounts receivable.

Sales = $11,350

Discount percentage = 2%

$\begin{array}{c}\text{Amount of accounts receivable}\}\text{ = }\left(\text{Sales}-\text{Discount}\right)\\ \text{=}\text{Sales}-\left(\text{Sales}\times 2\%\right)\\ \text{= \$11,350 – }\left(\$11,350\times 2\%\right)\\ \text{= \$11,350}-\$227\\ =\$11,123\end{array}$ (8)

Explanation

• Accounts Receivable is an asset and it is increased by $11,123. Therefore, debit accounts receivable with $11,123.
• Sales revenue is revenue and it increases the value of equity by $11,123. Therefore, credit sales revenue with $11,123.

Record the journal entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
July 18	Accounts Receivable		475
	Cash			475
	(To record freight charges paid)

Table (17)

Explanation:

• Accounts Receivable is an asset and it is increased by $475. Therefore, debit accounts receivable with $475.
• Cash is an asset and it is decreased by $475. Therefore, credit cash account with $475.

Record the journal entry for cost of goods sold.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 18	Cost of  Sold	6,800
	Inventory		6,800
	(To record the cost of goods sold)

Table (18)

Explanation

• Cost of  sold is an expense account and it decreases the value of equity by $6,800. Therefore, debit cost of  sold account with $6,800.
•  Inventory is an asset and it is decreased by $6,800. Therefore, credit inventory account with $6,800.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 24	Cash	12,870 (9)
	Accounts Receivable		12,870
	(To record the receipt of cash against accounts receivables)

Table (19)

Calculate the amount of cash received.

Net accounts receivable = $15,840

Customer refunds payable = $2,970

$\begin{array}{c}\text{Amount of cash received}\}\text{ = Net accounts receivable}-\text{Customer refunds payable}\\ \text{= \$15,840}-\$2,970\\ =\$12,870\end{array}$ (9)

Explanation

• Cash is an asset and it is increased by $12,870. Therefore, debit cash account with $12,870.
• Accounts Receivable is an asset and it is increased by $12,870. Therefore, debit accounts receivable with $12,870.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 28	Cash	11,598 (10)
	Accounts Receivable		11,598
	(To record the receipt of cash against accounts receivables)

Table (20)

Calculate the amount of cash received.

Net accounts receivable = $11,123

Freight charges = $475

$\begin{array}{c}\text{Amount of cash received}\}\text{ = Net accounts receivable}+\text{Freight charges}\\ \text{= \$11,123}+\$475\\ =\$11,598\end{array}$ (10)

Explanation

• Cash is an asset and it is increased by $11,598. Therefore, debit cash account with $11,598.
• Accounts Receivable is an asset and it is increased by $11,598. Therefore, debit accounts receivable with $11,598.

Record the journal entry for delivery expense.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 31	Delivery expense	8,550
	Cash		8,550
	(To record the payment of delivery expenses)

Table (21)

Explanation

• Delivery expense is an expense account and it decreases the value of equity by $8,550. Therefore, debit delivery expense account with $8,550.
• Cash is an asset and it is decreased by $8,550. Therefore, credit cash account with $8,550.

Record the journal entry for the cash receipt against accounts receivable.

Date	Accounts and Explanation	Debit ($)	Credit ($)
July 31	Cash	33,450
	Accounts Receivable		33,450
	(To record the receipt of cash against accounts receivables)

Table (22)

Explanation

• Cash is an asset and it is increased by $33,450. Therefore, debit cash account with $33,450.
• Accounts Receivable is an asset and it is increased by $33,450. Therefore, debit accounts receivable with $33,450.

Record the journal entry for credit card expense.

Date	Accounts and Explanation	Debit ($)	Credit ($)
August 3	Credit card expense	3,770
	Cash		3,770
	(To record the payment of credit card expenses)

Table (23)

Explanation

• Credit card expense is an expense account and it decreases the value of equity by $3,770. Therefore, debit credit card expense account with $3,770.
• Cash is an asset and it is decreased by $3,770. Therefore, credit cash account with $3,770.

Record the journal entry for credit card expense.

Date	Accounts and Explanation	Debit ($)	Credit ($)
August 10	Sales tax payable	41,260
	Cash		41,260
	(To record the payment of credit card expenses)

Table (24)

Explanation

• Sales tax payable is a liability account and it is decreased by $41,260. Therefore, debit customer refunds payable account with $41,260.
• Cash is an asset and it is decreased by $41,260. Therefore, credit cash account with $41,260