Question

ACY Limited (ACY) had 100 units of product X at a unit cost of $12 each as of August 31, 2019. ACY had two transactions in September 2019 relating to its product X:

1. On September 5, 2019, ACY purchased 300 units of product X at a unit cost of $13, with a term 5/20, n/30.

2. ACY settled the full amount for September 5’s purchase on September 10, 2019, within the discount period.

3. On September 15, 2019, ACY sold all available 400 units of product X to a customer at a unit selling price of $20. This was a cash sale.

The gross method is used for all cash discounts received/granted.

ACY adopts a periodic inventory system with a FIFO cost flow assumption for calculating the cost of goods sold at the end of each month.

Requirement:

Prepare the journal entries for the transactions in September 2019.

Answer 1

ACY Limited
Date	Account title and explanation	Debit	credit
September 5, 2019	Inventory	$        3,900
	Accounts payable		$        3,900
	(To record purchased of inventory on account) (300*13)
September 10, 2019	Account payable	$        3,900
	Inventory (3900*5%)		$           195
	Cash (3900-195)		$        3,705
	(To record cash paid to supplier.)
September 15, 2019	Cash	$        8,000
	Sales revenue		$        8,000
	(To record sales revenue on account.) (400*20)
September 15, 2019	Cost of goods sold	$        4,905
	Inventory		$        4,905
	(To record cost of goods sold.)

Method	First in First out		Periodic Inventory System
date	Goods Available for sale	Cost of goods sold	Ending inventory
Unit	unit cost	value	Unit	unit cost	value	Unit	unit cost	value
Beginning	100	$    12.00	$          1,200	100	$     12.00	$        1,200
Purchase (unit cost = 13 - (13*5%))	300	$    12.35	$          3,705	300	$     12.35	$        3,705
Total	400		$          4,905	400		$        4,905	0		$           -