Chapter 6, Problem 1PA

The following selected transactions were completed by Capers Company during October of the current year:

Instructions

Journalize the entries to record the transactions of Capers Company for October.

To determine

Prepare journal entries to record the transactions of Company C during the month of October using perpetual inventory system.

Explanation of Solution

Perpetual Inventory System refers to the Merchandise Inventory system that maintains the detailed records of every Merchandise Inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-merchandise inventory at any point of time.

Record the journal entry of Company C during October.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 1	Merchandise Inventory		14,448
	Accounts payable			14,448
	(To record purchase on account)

Table (1)

• Merchandise Inventory is an asset and it is increased by $14,448. Therefore, debit Merchandise Inventory account with $14,448.
• Accounts payable is a liability and it is increased by $14,448. Therefore, credit accounts payable account with $14,448.

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 3	Merchandise Inventory		9,971
	Accounts payable			9,971 (1)
	(To record purchase on account)

Table (2)

• Merchandise Inventory is an asset and it is increased by $9,971. Therefore, debit Merchandise Inventory account with $9,971.
• Accounts payable is a liability and it is increased by $9,971. Therefore, credit accounts payable account with $9,971.

Working Note (1):

Calculate the amount of accounts payable.

Purchases = $9,950

Discount percentage = 2%

Freight charges = $220

  $\begin{array}{c}\text{Amount of accounts payable}\}\text{ = }\left[\left(\text{Purchases}-\text{Discount}\right)+\text{Freight}\right]\\ \text{=}\left[\text{Purchases}-\left(\text{Purchases}\times 2\%\right)+\text{Freight}\right]\\ \text{= }\left[\text{\$9,950 – }\left(\$9,950\times 2\%\right)+\$220\right]\\ \text{= \$9,950}-\$199+\$220\\ =\$9,971\end{array}$

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 4	Merchandise Inventory		13,377
	Accounts payable			13,377 (2)
	(To record purchase on account)

Table (3)

• Merchandise Inventory is an asset and it is increased by $13,377. Therefore, debit Merchandise Inventory account with $13,377.
• Accounts payable is a liability and it is increased by $13,377. Therefore, credit accounts payable account with $13,377.

Working Note (2):

Calculate the amount of accounts payable.

Purchases = $13,650

Discount percentage = 2%

  $\begin{array}{c}\text{Amount of accounts payable}\}\text{ = }\left(\text{Purchases}-\text{Discount}\right)\\ \text{=}\text{Purchases}-\left(\text{Purchases}\times 2\%\right)\\ \text{= \$13,650 – }\left(\$13,650\times 2\%\right)\\ \text{= \$13,650}-\$273\\ =\$13,377\end{array}$

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 6	Accounts payable		4,459 (3)
	Merchandise Inventory			4,459
	(To record purchase return)

Table (4)

• Accounts payable is a liability and it is decreased by $4,459. Therefore, debit accounts payable account with $4,459.
• Merchandise Inventory is an asset and it is decreased by $4,459. Therefore, credit Merchandise Inventory account with $4,459.

Working Note (3):

Calculate the amount of accounts payable.

Purchases return = $4,550

Discount percentage = 2%

  $\begin{array}{c}\text{Amount of accounts payable}\}\text{ = }\left(\text{Purchases return}-\text{Discount}\right)\\ \text{=}\text{Purchases return}-\left(\text{Purchases return}\times 2\%\right)\\ \text{= \$4,550 – }\left(\$4,550\times 2\%\right)\\ \text{= \$4,550}-\$91\\ =\$4,459\end{array}$

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 13	Accounts payable		9,971
	Cash			9,971
	(To record payment made in full settlement less discounts)

Table (5)

• Accounts payable is a liability and it is decreased by $9,971. Therefore, debit accounts payable account with $9,971.
• Cash is an asset and it is decreased by $9,971. Therefore, credit cash account with $9,971.

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 14	Accounts payable		8,918 (4)
	Cash			8,918
	(To record payment made in full settlement less discounts)

Table (6)

• Accounts payable is a liability and it is decreased by $8,918. Therefore, debit accounts payable account with $8,918.
• Cash is an asset and it is decreased by $8,918. Therefore, credit cash account with $8,918.

Working Note (4):

Calculate the amount of net accounts payable.

Merchandise Inventory = $13,377 (2)

Purchase returns = $4,459 (3)

$\begin{array}{c}\text{Net accounts payable = Inventory – Purchase returns}\\ =\$13,377–\$4,459\\ =\$8,918\end{array}$

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 19	Merchandise Inventory		27,300
	Accounts payable			27,300
	(To record purchase on account)

Table (7)

• Merchandise Inventory is an asset and it is increased by $27,300. Therefore, debit Merchandise Inventory account with $27,300.
• Accounts payable is a liability and it is increased by $27,300. Therefore, credit accounts payable account with $27,300.

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 19	Merchandise Inventory		400
	Cash			400
	(To record freight charges paid)

Table (8)

• Merchandise Inventory is an asset and it is increased by $27,300. Therefore, debit Merchandise Inventory account with $27,300.
• Cash is an asset and it is decreased by $400. Therefore, credit cash account with $400.

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 20	Merchandise Inventory		21,780
	Accounts payable			21,780 (5)
	(To record purchase on account)

Table (9)

• Merchandise Inventory is an asset and it is increased by $21,780. Therefore, debit Merchandise Inventory account with $21,780.
• Accounts payable is a liability and it is increased by $21,780. Therefore, credit accounts payable account with $21,780.

Working Note (5):

Calculate the amount of accounts payable.

Purchases = $22,000

Discount percentage = 1%

  $\begin{array}{c}\text{Amount of accounts payable}\}\text{ = }\left(\text{Purchases}-\text{Discount}\right)\\ \text{=}\text{Purchases}-\left(\text{Purchases}\times 2\%\right)\\ \text{= \$22,000 – }\left(\$22,000\times 1\%\right)\\ \text{= \$22,000}-\$220\\ =\$21,780\end{array}$

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 30	Accounts payable		21,780
	Cash			21,780
	(To record payment made in full settlement less discounts)

Table (10)

• Accounts payable is a liability and it is decreased by $21,780. Therefore, debit accounts payable account with $21,780.
• Cash is an asset and it is decreased by $21,780. Therefore, credit cash account with $21,780.

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 31	Accounts payable		14,448
	Cash			14,448
	(To record payment made in full settlement less discounts)

Table (11)

• Accounts payable is a liability and it is decreased by $14,448. Therefore, debit accounts payable account with $14,448.
• Cash is an asset and it is decreased by $14,448. Therefore, credit cash account with $14,448.

Record the journal entry of Company C.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October 31	Accounts payable		27,300
	Cash			27,300
	(To record payment made in full settlement less discounts)

Table (12)

• Accounts payable is a liability and it is decreased by $27,300. Therefore, debit accounts payable account with $27,300.
• Cash is an asset and it is decreased by $27,300. Therefore, credit cash account with $27,300.