Question

Diablo Corporation uses the perpetual inventory system. Please create journal entries for the following inventory transactions. Show any necessary work/calculations. October 2 - Purchased on account $7,200 of inventory for resale. Credit terms 2/10, n/30. FOB shipping point. October 3 - Paid $300 for shipping costs related to the October 2 inventory purchase. October 5 - Sold inventory, costing $12,000, to a customer for $16,000 retail price. Credit terms 1/15, n/40. FOB shipping point. October 7 - Returned $500 of defective inventory related to the October 2 purchase for an account credit. October 10 - Paid the balance of the account owed from the October 2 purchase. October 15 - Granted a $1,000 allowance against a customer's account relating to the October 5 sale of inventory. October 20 - Received payment of the net balance from the October 5 sale of inventory.

Answer 1

	In the Books of Diablo Corporation
Date	Accounts & Explanation	Post ref	Debit	Credit
Oct-02	Merchandise Inventory		$               7,200
	Accounts Payable			$           7,200
	(to inventory purchased on account)
Oct-03	Merchandise Inventory		$                  300
	Cash			$              300
	(to shipping cost paid in cash)
Oct-05	Accounts Receivable		$             16,000
	Sales			$         16,000
	(to sales made on account)
	Cost of goods sold		$             12,000
	Merchandise Inventory			$         12,000
	(to cost of goods sold recorded)
Oct-07	Accounts Payable		$                  500
	Merchandise Inventory			$              500
	(to defective inventory returned)
Oct-10	Accounts Payable		$               6,700
	Cash			$           6,566
	Purchase discounts($6,700*2%)			$              134
	(to payment due made to seller net of discount)
Oct-15	Sales allowance		$               1,000
	Accounts Receivable			$           1,000
	(to allowances made to customer)
Oct-20	Cash		$             14,850
	Sales Discounts($15,000*1%)		$                  150
	Accounts Receivable			$         15,000
	(to payment received from customer net of discount)