Question

Book Journal Entries for the following transactions.

Inventory includes the following: Beginning balance of $0. On January 3, 2016 we purchased $22,000 (1000 units at $22) worth of inventory. 1,000 units of inventory was purchased on June 1 for $23/unit; and finally a 1,000 units on December 1 for $24/unit. 2,000 units were sold for $300/unit on December 20^th ($120,000 in cash was received and the remaining will be collected in 2017). The rate used for determining uncollectible has been set at 10% of gross credit sales. The company uses perpetual FIFO.     

Answer 1

Solution

Journal entries:

Date	Account Titles and Explanation	Ref. Post	Debit	Credit
Jan 3, 2016	Merchandise Inventory		$22,000
	Cash			$22,000
	(to record purchase of 1,000 units at $22 each)
June 1, 2016	Merchandise Inventory		$23,000
	Cash			$23,000
	(To record purchase of 1,000 units at $23 each)
Dec 1, 2016	Merchandise Inventory		$24,000
	Cash			$24,000
	(To record purchase of 1,000 units at $23 each)
Dec 20, 2016	Cash		$120,000
	Accounts Receivable		$480,000
	Sales Revenue			$600,000
	(To record sale of 2,000 units at $300 each, partly cash and partly credit)
Dec 20, 2016	Cost of Goods Sold		$45,000
	Merchandise Inventory			$45,000
	(To record cost of goods sold)
Dec 31, 2016	Bad debts Expense		$14,800
	Allowance for Doubtful Debts			$14,800
	(To record 10% of credit sales as uncollectible; 10% x 148,000 = $14,800)

Note –

Computations of cost of goods sold –

Units sold on December 20, 2017 = 2,000

The company uses FIFOmethod,

Hence, cost of goods sold for 2,000 units = (1,000 x 22) + (1,000 x $23) = $45,000