Question

Part ll On 1 December 2015, Sea World sold goods on credit to Funny Land for $80,000. Upon delivery, Funny found the goods of $5,000 was defectivle and returned to Sea world. On 8 December 2015, Funny Land settled half of the outstanding amount. Funny Land uses perpetual inventory system. Required: (a) Prepare the journal entries in the accounting records of Funny Land to account for the purchase, the returns and the subsequent payment. Journal Debit Credit Date Accounts Titles (b) On 31 December 2015, Funny Land has a balance of $478,000 in the inventory account per record, but an inventory taking shows that the inventory on hand has a cost of $472,500. Prepare the journal entry required in this situation. Journal Accounts Titles Debit Credit Date

Answer 1

In the books of Funny Land

a) Journal entries:

Date	Accounts	Debit	Credit
1 December 2015	Purchase	$80000
	Accounts payable - Sea World		$80000
	(To record purchase of goods on credit)
1 December 2015	Accounts payable - Sea World	$5000
	Purchase returns		$5000
	(To record return of goods)
8 December 2015	Accounts payable - Sea World	$37500
	Cash		$37500
	(To record payment)

b)

Date	Accounts	Debit	Credit
31 December 2015	Inventory shortage	$5500
	Inventory		$5500
	(To record shortage of inventory on stock counting)

Notes:

1. Amount outstanding on 8 December = $80000 - $5000 = $75000

2. Amount paid to Sea world = Amount outstanding on 8 December*50%

= $75000*50%

= $37500

3. Shortage of inventory = $478000 - $472500 = $5500