Question

In: Accounting

The company accounts for all inventory transactions using the perpetual FIFO method. Purchases and sales of...

The company accounts for all inventory transactions using the perpetual FIFO method. Purchases and sales of inventory are recorded using the gross method for cash discounts. The $18,000 beginning balance of inventory consists of 200 units, each costing $90. During January 2018, the company had the following transactions: During January 2018, the following transactions occur:

January 2 Lent $26,000 to an employee by accepting 6% note due in six months.

January 5 Purchased 3,800 units of inventory on account for $380,000 ($100 each) with terms 1/10, n/30. J

anuary 8 Returned 140 defective units of inventory purchased on January 5. January 15 Sold 3,600 units of inventory on account for $432,000 ($120 each) with terms 2/10, n/30. January 17 Customers returned 100 units sold on January 15. These units are placed in inventory to be sold in the future

. January 20 Received cash from customers on accounts receivable. This amount includes $42,000 from 2017 plus amount receivable on sale of 3,000 units sold on January 15. January 21 Wrote off remaining accounts receivable from 2017.

January 24 Paid on accounts payable. The amount includes the amount owed at the beginning of the period plus the amount owed from purchase of 3,400 units on January 5. January 28 Paid cash for salaries during January, $34,000.

January 29 Paid cash for utilities during January, $16,000. January 30 Paid dividends, $9,000. The following information is available on January 31, 2018. Of the remaining accounts receivable, the company estimates that 10% will not be collected. Accrued interest income on notes receivable for January. Accrued interest expense on notes payable for January. Accrued income taxes at the end of January for $5,600. Depreciation on the building, $2,600.

Solutions

Expert Solution

Let us first pass all the journal entries

S.No. Date. Particulars. Debit ($) Credit ($)   

1. 2nd Jan. Advance to Employees A/C. Dr. 26000

To Notes Payable (Liability). 26000

(Being advance lent to employess by accepting notes)

2. 5th Jan. Purchases (3800*100) A/C. Dr. 380000

To Creditors/Suppliers 380000

(Being credit purchase made of 3800 units @100/- each)

3. 8th Jan. Creditors/Suppliers.A/C Dr. 14000

To Purchase Return. 14000

(Being purchase return made of 140 units @100/- each)

4. 15th Jan. Debtors/ Customers A/C Dr. 432000

To Sales. 432000

(Being sales made of 3600 units @120/- each)

5. 17th Jan. Sales Return A/C Dr. 12000

To Debtors/Customers 12000

(Being sales return received of 100 units @120/- each)

6. 20th Jan. Cash A/C Dr. 394800

Discount Allowed Dr 7200

To Debtors/Customers 360000

To customers (2017) 42000

(Being cash realised and 2%discount allowed to customers)

7. 21st Jan. Bad debts A/C Dr. _____

To Customers (2017). ____

(Being customers wriiten off but amount could not be ascertained from the information given in the question)

8. 24th Jan. Creditors/Suppliers A/C Dr. 24000

To Cash. 240000

(Being cash paid to current year suppliers as previous years figure un ascertainable)

9. 28th Jan. Salaries A/C Dr. 12000

To Cash. 12000

(Being salaries paid to employee for the m/o january)

10. 29th Jan. Utilities A/C Dr. 16000

To Debtors/Customers 16000

(Being Utilities purchased)

11. 30th Jan. Retained Earnings Dr. 9000

To Cash. 9000

(Being dividend paid 9000)

12. 31st Jan. Bad debts A/C (60000*10%) Dr. 6000

To Provision for bad debts 6000

(Being irrecoverable amount of current year debtors written off as expesne)

13. 31st Jan. Adv to Empl A/C (26000*6%*1/12) Dr. 130

To Interest Payable 130

(Being interest on notes payable booked for january tf to employees advance)

14. 31st Jan. Profit and loss A/C Dr. 5600

To Provision for taxation 5600

(Being tax expense booked)

15. 31st Jan. Depreciation A/C Dr. 2600

To Building. 2600

(Being depreciation booked on building )

Income statement for the period january 2018

Sales (less returns) 420000

(-) Purchase (less returns). (366000)

(+) Changes in inventory [(18000)-(36000)] 18000

(-) Discount Utilities & bad debt expens (29200) [7200+16000+6000]

(-) Depreciation. (2600)

(-) Payment to employees (34000)

Profit before Taxation 6200

(-) Tax expense. (5600)

Profit after tax. = 600

(-) Divident proposed = 9000

Profit trransfwrred to balance sheet = -8400

Notes-

1. Interest expense could have been booked as an expense depending upon the agreemnent bwtween the company and the employee, till now it has been assumed that the same would be recovered from the employee

2 Since opening balances of suppliers and customers are not given, answers are subject to minute changes has they been provided


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