Question

The Wholesale Company purchases soft drinks from producers and then sells them to retailers. The company began 2019 with merchandise inventory of $120,000 on hand. The company uses the gross method to record cash discounts. During 2019, additional inventory transactions include:

1. Purchases of merchandise on account totaled $620,000, with terms 2/10, n/30.
2. Merchandise with a cost of $20,000 was returned to suppliers for credit.
3. Freight charges paid by Wholesale were $16,000.
4. All purchases on account were paid within the discount period.
5. Sales on account totaled $830,000 before trade discounts of 10%. The cost of soft drinks sold was $550,000.
6. Sales returns on account totaled $5,000 before trade discounts of 10%.   The cost of the soft drinks was $2,000. The returned items were of no value. They cannot be resold so they were thrown in the garbage.

Prepare the required journal entries under the perpetual inventory system

Answer 1

Solution:

S NO.	Account Titles and Explanation	Debit	Credit
1	Inventory	$       620,000
	Account Payable		$     620,000
	(To record inventory purchased on account)
2	Account Payable	$         20,000
	Inventory		$       20,000
	(To record inventory returned and received credit)
3	Inventory	$         16,000
	Cash		$       16,000
	(To record freight charges paid)
4	Accounts Payable	$       600,000
	Inventory [600000*2/100]		$       12,000
	Cash		$     588,000
	[To record payment of accounts payable
5	Account Receivable	$       830,000
	Sales Revenue		$     830,000
	(To record sales made on account)
6	Cost Of Goods Sold	$       550,000
	Inventory		$     550,000
	( To record Cost of goods sold)
7	Sales returns	$            5,000
	Account Receivable		$          5,000
	(To record sales returns)
8	Inventory	$            2,000
	Cost of Merchandise Sold		$          2,000
	(To record cost of goods sold reversed)