Question

At the beginning of November, Donkey Inc.'s inventory consists of 50 units with a cost per unit of $100. The following transactions occur during the month of November.

November 2 Purchase 80 units of inventory on account from Kong Inc. for $110 per unit, terms 2/10, n/30.
November 3 Pay freight charges related to the November 2 purchase, $240.
November 9 Return 20 defective units from the November 2 purchase and receive credit.
November 11 Pay Kong Inc. in full.
November 16 Sell 100 units of inventory to customers on account, $14,000. [Hint: The cost of units sold from the November 2 purchase includes $110 unit cost plus $4 per unit for freight less $2.20 per unit for the purchase discount, or $111.80 per unit.]
November 20 Receive full payment from customers related to the sale on November 16.
November 21 Purchase 70 units of inventory from Kong Inc. for $120 per unit, terms 1/10, n/30.
November 24 Sell 50 units of inventory to customers for cash, $9,000.

Required:

1. Assuming that Donkey Inc. uses a FIFO perpetual inventory system to maintain its internal inventory records, record the transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

	Date General Journal Debit Credit

Answer 1

Nov 2	Inventory	Dr	8800
	Kong Inc	Cr		8800
	(Purchase Made)
Nov 3	Freight	Dr	240
	Cash	Cr		240
	(Freight Paid)
Nov 3	Inventory	Dr	240
	Freight	Cr		240
	(Freight Charged to Inventory)
Nov 9	Kong Inc	Dr	2200
	Inventory	Cr		2200
	(Goods Returned)
Nov 11	Kong Inc	Dr	6600
	Discount	Cr		132
	Cash	Cr		6468
	(Final Payment made to Kong Inc)
Nov 16	A/c Receivable	Dr	14000
	Sales	Cr		14000
	(Sales on account made)
Nov 16	Cost of goods sold	Dr	10590
	Inventory	Cr		10590
	(Inventory W/off)
Nov 20	Cash A/c	Dr	14000
	A/c Receivable	Cr		14000
	(Payment Received from debtors)
Nov 21	Inventory	Dr	8400
	Kong Inc	Cr		8400
	(Purchase made)
Nov 24	Cash	Dr	9000
	Sales	Cr		9000
	(Cash sales made)
Nov 24	Cost of goods sold	Dr	5918
	Inventory A/c	Cr		5918
	(Inventory W/off)

Working Notes:

1. Since entity is following perpetual FIFO Method of inventory valuation so Cost of goods sold is calculated and accounted after every sales transaction.

2. Discount is allowed @ 2 percent because payment is made with in 10 days of purchase calculation of discount is as below

(60 x 110) = 6600 x 2% = $132

so net payment of $6468 is made to kong inc

3. Cost of Nov 3 purchase 60 units will be

110 + 240 / 60 - 2% of 110 = Cost + Freight - Discount = 110 +4 -2.2 = $111.8 Per unit for 60 units

4. Cost of goods sold for nov 16 sale = ( 50 x 100 = 5000) + (50 x 111.80 = 5590) = 10590

5. Cost of goods sold for nov 24 sales = (10 x 111.80 = 1118) + (40 x 120 = 4800) = 5918