Question

Chapter 6 Patricia’s Fabrics sells sewing machines and fabrics. On December 31, 2016, Patricia’s inventory amounted to $690,000. During the first week in January 2017 the company made only one purchase and one sale. These transactions were: Jan. 4 Purchased 20 sewing machines and 80 bolts of fabric from Consolidated Sewing. The total cost was $44,000, terms are 3/10, n/60. Jan. 7 Sold several sewing machines and a variety of fabrics on account to Vasquez Furniture Reupholsters. The total sales price was $29,000, terms are 2/10, 1/30, n/60. The total cost of the sewing machines and fabrics to Patricia’s was $14,500 (net of the purchase discount). Patricia’s records sales at the gross sales price and purchases at net cost and maintains subsidiary ledgers for accounts receivable, inventory and accounts payable. They use a periodic inventory system. Required: 1. Prepare journal entries to record these transactions, assuming that Patricia’s uses a perpetual inventory system. 2. What is the balance in the inventory account at the close of business on January 7th? 3. Prepare journal entries to record the two transactions. 4. What is the cost of goods sold for the first week of January? 5. What is the gross profit margin on the January 7th sale to Vasquez Furniture Reupholsters? 6. If Patricia’s pays their invoice on January 8th, how much will they pay? If Vasquez pays their invoice on January 14th, how much will they pay?

Answer 1

1.a.     Entry to record the purchase
Date	Account Title	Debit	Credit
Jan.4	Inventory	42680
	Accounts Payable		42680
1.b.    .Entry to record sale
Date	Account Title	Debit	Credit
Jan.7	Accounts Receivable	29000
	Sales		29000
1.c.    To record the cost of goods sold
Date	Account Title	Debit	Credit
Jan.7	Cost of goods sold	14500
	Inventory		14500

2. Balance in the inventory account = Beginning inventory + purchases - Sales

= $690,000+$42,680-$14,500

=$718,180

3. journal entries are given above.

4. Cost fo goods sold = $14,500.

5. Gross prift margin = 50%   

Sales = $29,000

Cost of goods sold = $14,500

Gross profit = $14,500

Gross profit margin = $14,500 / $29,000 = 50%

6.

a. If the payment is made on January 8th , this will be within the credit period.

Hence, Patricia will pay $42,680.

b. If the payment is made on January 14th , this will be outside the credit period.

Hence, Patricia will pay $44,000.