Question

Problem 8-1 (Algo) Various inventory transactions; journal entries [LO8-1, 8-2, 8-3]

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James Company began the month of October with inventory of $23,000. The following inventory transactions occurred during the month:

1. The company purchased merchandise on account for $34,000 on October 12. Terms of the purchase were 3/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $580 were paid in cash.
2. On October 31, James paid for the merchandise purchased on October 12.
3. During October merchandise costing $19,200 was sold on account for $29,600.
4. It was determined that inventory on hand at the end of October cost $37,360.

Problem 8-1 (Algo) Part 1

Required:
1. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution:

Date	Account title and explanation	Debit	Credit
Oct 12	Merchandised inventory ($34,000*97%)	$32,980
	Accounts payable		$32,980
	(To record the purchase of inventory on account)
Oct 12	Merchandise inventory	$580
	Cash		$580
	(To record freight)
Oct 31	Account payable	$32,980
	Interest expenses	$1,020
	Cash		$34,000
	(To record the payment made to suppliers)
Oct	Accounts receivable	$29,600
	Sales revenue		$29,600
	(To record the sale on account)
Oct	Cost of goods sold	$19,200
	Merchandise inventory		$19,200
	(To record the cost of goods sold)
Oct	No entry required	-	-

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