Question

Required: Prepare journal entries for each of the following transactions under the Perpetual Inventory method—include recording date and all required revenue, expense and balance sheet accounts. The Widget Company sells only one product (widgets) and uses FIFO. December 31, 2019 inventory is as follows:

Date purchased	Quantity	Unit cost
December 5, 2019	1,500	$5.34
December 20, 2019	700	$5.48
December 28, 2019	500	$5.40

1. January 2, 2020: Received 1,000 widgets with a unit cost of $6.00. The units were shipped from the supplier on December 29, 2019 FOB shipping point. The widgets were not included in the December 31, 2019 inventory. Payment terms are 2/10, net 30. The company uses the Net Method for recording payment discounts.
2. January 5, 2020: Sold 3,000 widgets for $11.00 each and shipped FOB shipping point. Payment terms are 1/10, net 30. The company uses the Gross Method for recording sales discounts.
3. January 6, 2020: Paid in full for the 1,000 widgets received on January 2, 2020.
4. January 10, 2020: Customer returned 200 of the widgets sold and shipped on January 5, 2020. All items were in excellent condition and returned to inventory.
5. January 15, 2020: Received 2,500 widgets with unit cost of $90. Payment terms are net 30—no payment discount offered. Atlas Freight Company billed Widgets $250.00 for delivering the widgets and Widgets paid Atlas immediately.
6. Calculate the following for January 2020:
   1. Inventory quantity on hand and account balance at the end of the month
   2. Net Sales, Cost of Goods Sold and Gross Profit for January 2020

Answer 1

Journal Entries

Date	Account	Debit ($)	Credit ($)
Jan-20
2	Inventory	5,880.00
	Accounts payable		5,880.00
	(Being 1000 widgets of $ 6 each purchased on 2/10, Net 30 terms)
5	Cost of goods sold (WN 1)	16,310.00
	Inventory		16,310.00
	Sales		33,000.00
	Accounts receivable	33,000.00
	(Being 3000 Widgets Sold at $ 11 Each, following FIFO Method)
6	Accounts payable	5,880.00
	Cash		5,880.00
	(Being Amount Paid)
10	Inventory	1,176.00
	Cost of goods sold (200*5.88)		1,176.00
	Sales returns	2,200.00
	Accounts receivable		2,200.00
	(Being 200 Widgets Retuned by Customer, following FIFO Method)
15	Inventory	2,25,250.00
	Accounts payable		2,25,250.00
	(Being 2500 widgets of $ 90 each purchased, Net 30 terms and Freight of $250)
15	Accounts payable	2,25,250.00
	Cash		2,25,250.00
	(Being Amount Paid)

WN 1 Valuation of Closing Stock

Date	Qty	Price ($)	Amount ($)
Jan 2, 2020	900	5.88	5,292.00
Jan 15,2020	2500	90.10*	2,25,250.00
Value of Stock Jan 31, 2020	3400		2,30,542.00

* 225250/2500

WN 2 Cost of Good Sold

Gross COGS	Qty	Price ($)	Amount ($)
Dec 5, 2019	1500	5.34	8,010.00
Dec 20, 2019	700	5.48	3,836.00
Dec 28, 2019	500	5.40	2,700.00
Jan 2, 2020	300	5.88	1,764.00
Cost of Goods Sold on Jan 5	(a)		16,310.00
Goods Retunred
Jan 10, 2020	200	5.88	1,176.00
Cost of Goods Sold Return on Jan 10	(b)		1,176.00
Net Cost of Good Sold	(a-b)		15,134.00

WN 3 Sales COGS and Profit

Particulars	Amount ($)
Gross Sale	33,000.00
Less: Sales Retun	2,200.00
Net Sales	30,800.00
Net COGS (WN 2)	15,134.00
Gorss Margin	15,666.00