Question

James Company began the month of October with inventory of $33,000. The following inventory transactions occurred during the month:

1. The company purchased merchandise on account for $49,000 on October 12. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $680 were paid in cash.
2. On October 31, James paid for the merchandise purchased on October 12.
3. During October merchandise costing $20,700 was sold on account for $31,600.
4. It was determined that inventory on hand at the end of October cost $61,000.

Required:
1. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. James considers purchase discounts lost as part of interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1) Journal entry using a perpetual inventory system is as follows:

Date	Account and Explanation	Debit($)	Credit($)
October 12	Inventory ($49,000 * 98%)	48,020
	Account Payable		48,020
	(Recorded the Purchase of Inventory )
October 12	Inventory	680
	Cash		680
	(Recorded the payment of freight charges)
October 31	Account Payable	48,020
	Cash		48,020
	(Recorded the payment of purchases )
October 31	Account Receivable	31,600
	Sales Revenue		31,600
	(Recorded the sale of goods)
October 31	Cost of goods sold	20,700
	Inventory		20,700
	(Recorded the cost of goods sold )
October 31	No Entry

2) Journal entry using a periodic inventory system is as follows:

Date	Account and Explanation	Debit($)	Credit($)
October 12	Purchase ($49,000 * 98%)	48,020
	Account Payable		48,020
	(Recorded the Purchase of Inventory )
October 12	Freight charges	680
	Cash		680
	(Recorded the payment of freight charges in cash)
October 31	Account Payable	48,020
	Discount	980
	Cash		49,000
	(Recorded the payment of purchases after discount)
October 31	Account Receivable	31,600
	Sales Revenue		31,600
	(Recorded the sale of goods)
October 31	No entry for cost of goods sold under the periodic inventory system.
October 31	Inventory ending	61,000
	Cost of goods sold	20,700
	Inventory Begining		33,000
	Purchase		48,020
	Freight Expenses		680
	(Recorded the inventory on hand)