Question

Samsung Inc. sells flat Hi-tech TV´s . At December 31, 2018, the company’s inventory amounted to 50.000€. During the year 2019, the company made only one purchase and two sales. These transactions were as follows:

January 12.    Purchased merchandises to Samsung India corp. The price of the merchandises was 600.000, discount terms 3/10; n/30

February 10. Paid the accounts payable to Samsung India corp.

March 20.       Sold TV´s to FNAC for 250.000€ who paid cash. The cost of these items was 200.000€

December 18. Sold Super flat TV´s to El Corte Ingles for 300.000€. The cost of said products was 150.000€, with discount terms 3/10; n/60. Said invoice was still unpaid at December 31, 2019

1. Prepare journal entries to record these transactions, assuming that Samsung Inc. uses a perpetual inventory system using Net purchases and gross sales. Provide with a developed explanation of the different entries and a justification of the amounts recorded.
2. Compute the ending balance in the Inventory account at the close of business on January 12 Explain your answer.
3. Prepare the company’s income statement for the year 2019 taking into account that the remaining expenses of the company during the whole year amounted to 40.000€. Explain the different entries of the income statement and in particular the effects of the discount terms on the operations where applicable
4. Explain the main differences between the perpetual and periodic inventory system and record the transactions using a periodic inventory system
5. Prepare the company’s trial balance at January 1, 2020 taking into account a Balance sheet at January 1 2019 as follow

Samsung Inc
Balance sheet
January 1, 2019
Cash	700.000
Inventory	50.000
Equipment	15.000
Accumulated depreciation Equipment	-15.000
Land	250.000
Building	1.000.000
Accumulated depreciation Building	-1.000.000
Capital		800.000
Retained earnings		200.000
Total	1.000.000	1.000.000

Answer 1

a. Journal Entries :

Jan 12:

Purchases A/c                            Dr           600

To Samsung India Corp                            600

(being the purchase of merchandises from Samsung India corp on, discount terms 3/10; n/30

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Feb 10

Samsung India Corp        Dr           600

To Discount Received                              18

To Cash                                                    582

(Paid the accounts payable to Samsung India corp after deducting 3% discount).

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March 20.

Cash                               Dr                              250

To Sales                                                                      250

(Sold TV´s to FNAC for 250.000€ who paid cash )

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December 18.

EI Corte Ingles                             Dr     300

To Sales                                              300

( Sold Super flat TV´s to El Corte Ingles) for 300.000€. The cost of said products was 150.000€, with discount terms 3/10; n/60. )

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Dec 18

Discount Allowed                                  9

To Provision for Discount on Allowed on Sales

(provision for discount on sale to EI Corte Ingles on discount terms 3/10; n/60.)

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Dec 31

Income Statement                 Dr                  209

To Retained Earnings                             209

(net profit transferred for the year)

b. Compute the ending balance in the Inventory account at the close of business

Opening Balance of Inventory                         50

Add Purchases                                               600

Less Sale to FNAC (cost price)                    - 200

Less Sale to EI Corte Ingles ( cost price)      - 150

                                                         -------------------------

Closing Balance of inventory                       300

                                                     ==================

c. Income Statement:

Income:

Sales                                                 550

Discount Received                               18

                                                   ---------------

Total (a)                                                568

                                                    -----------------

Expenses:

Cost of Goods Sold                             350

(Open.stock+Purchase-Clos.Stock)

(50+600-300)

Discount Allowed                                       9

                                                   ----------------------

Total (b)                                                   359

                                                     ---------------------

Net Profit (a-b)                                           209

                                                          ===========

d. Main differences between the perpetual and periodic inventory system:

The difference between the periodic and perpetual inventory systems. ... The periodic system relies upon an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold, while the perpetual system keeps continual track of inventory balances

e. Trial Balance as at 1 Jan 2020:

                                                                                     Debit                                  Credit

                                                                          

Cash	368.000
Inventory	300.000
Equipment	15.000
Accumulated depreciation Equipment	-15.000
Land	250.000
Building	1.000.000
Accumulated depreciation Building	-1.000.000
EI Corte Ingles	300.000
Capital		800.000
Retained earnings		409.000
Provision for Discount on Sales		9.000

Total	1218	1218