Merchandising Operations and the Accounting Cycle - Pearson

264 Part One The Basic Structure of Accounting
Date: _____________________
To: New Employee
From: Store Manager
Subject: The Bay’s accounting system for inventories
Problem 5-2A Accounting for the purchase and sale of inventory under the perpetual inventory
system (Obj. 2)
The following transactions occurred between Merck Frosst Canada Inc. and Drug
Trading Company during February of the current year.
Feb. 6 Merck Frosst sold $12,600 worth of merchandise to Drug Trading on terms of
2/10 n/30, FOB shipping point. Merck Frosst prepaid freight charges of $500
and included this amount in the invoice total. (Merck Frosst’s entry to record
the freight payment debits Accounts Receivable and credits Cash.) These goods
cost Merck Frosst $8,200.
10 Drug Trading returned $1,800 of the merchandise purchased on February 6. Merck
Frosst issued a credit memo for this amount and returned the goods to inventory
(cost, $1,180).
15 Drug Trading paid $6,000 of the invoice amount owed to Merck Frosst for the
February 6 purchase. This payment included none of the freight charge.
27 Drug Trading paid the remaining amount owed to Merck Frosst for the February 6
purchase.
Required
Journalize these transactions, first on the books of Drug Trading Company, and
second on the books of Merck Frosst Canada Inc.
Problem 5-3A Journalizing purchase and sale transactions under the perpetual inventory
system (Obj. 2)
Salimi Distributing Company Inc. engaged in the following transactions during
May of the current year:
May 3 Purchased office supplies for cash, $900.
7 Purchased inventory on credit terms of 3/10 net eom, $6,000.
8 Returned half the inventory purchased on May 7. It was not the inventory ordered.
10 Sold goods for cash, $1,350 (cost, $750).
13 Sold inventory on credit terms of 2/15 n/45, for $11,700, less $1,800 quantity
discount offered to customers who purchased in large quantities (cost, $5,400).
16 Paid the amount owed on account from the purchase of May 7, less the discount
and the return.
17 Received wrong-sized inventory as a sales return from May 13 sale, $2,700, which
is the net amount after the quantity discount. Salimi ’s cost of the inventory received
was $1,800.
18 Purchased inventory of $12,000 on account. Payment terms were 2/10 net 30.
26 Borrowed $11,760 from the bank to take advantage of the discount offered on
the May 18 purchase. Signed a note payable to the bank for this amount.
26 Paid supplier for goods purchased on May 18, less the discount.
28 Received cash in full settlement of the account from the customer who purchased
inventory on May 13, less the discount and the return.
29 Purchased inventory for cash, $6,000, less a quantity discount of $1,200, plus
freight charges of $480.
Required
1. Journalize the preceding transactions on the books of Salimi Distributing
Company Inc.