Carla Vista Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June, the following merchandising transactions occurred. June 1 Purchased books on account for $1,755 (including freight) from Catlin Publishers, terms 2/10, n/30. 3 Sold books on account to Garfunkel Bookstore for $1,200. The cost of the merchandise sold was $850. 6 Received $55 credit for books returned to Catlin Publishers. 9 Paid Catlin Publishers in full. 15 Received payment in full from Garfunkel Bookstore. 17 Sold books on account to Bell Tower for $1,550. The cost of the merchandise sold was $850. 20 Purchased books on account for $900 from Priceless Book Publishers, terms 3/15, n/30. 24 Received payment in full from Bell Tower. 26 Paid Priceless Book Publishers in full. 28 Sold books on account to General Bookstore for $2,650. The cost of the merchandise sold was $950. 30 Granted General Bookstore $210 credit for books returned costing $30.

Carla Vista Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June, the following merchandising transactions occurred. June 1 Purchased books on account for $1,755 (including freight) from Catlin Publishers, terms 2/10, n/30. 3 Sold books on account to Garfunkel Bookstore for $1,200. The cost of the merchandise sold was $850. 6 Received $55 credit for books returned to Catlin Publishers. 9 Paid Catlin Publishers in full. 15 Received payment in full from Garfunkel Bookstore. 17 Sold books on account to Bell Tower for $1,550. The cost of the merchandise sold was $850. 20 Purchased books on account for $900 from Priceless Book Publishers, terms 3/15, n/30. 24 Received payment in full from Bell Tower. 26 Paid Priceless Book Publishers in full. 28 Sold books on account to General Bookstore for $2,650. The cost of the merchandise sold was $950. 30 Granted General Bookstore $210 credit for books returned costing $30.

Journalize the transactions for the month of June for Carla Vista Warehouse, using a perpetual inventory system.

Solution:

Carla Vista Warehouse

Journal Entries

June 1:

Debit Inventory Account with $1,755

Credit Accounts Payable (Catlin Publishers) with $1,755

To record purchase on account, terms 2/10, n/30.

June 3:

Debit Accounts Receivable (Garfunkel Bookstore) with $1,200

Credit Sales with $,1200

To record sale of books on account.

Debit Cost of Goods Sold with $850

Credit Inventory Account with $850

To record cost of goods sold.

June 6:

Debit Accounts Payable (Catlin Publishers) with $55

Credit Inventory Account with $55

To record return of goods.

June 9:

Debit Accounts Payable (Catlin Publishers) with $1,700

Credit Cash Account with $1,666

Credit Cash Discount with $34

To record full settlement on account.

June 15:

Debit Cash with $1,200

Credit Accounts Receivable (Garfunkel Bookstore) with $1,200

To record full settlement on account, no discount.

June 17:

Debit Accounts Receivable (Bell Tower) with $1,550

Credit Sales with $1,550

To record sale of books on account.

Debit Cost of Goods Sold with $850

Credit Inventory Account with $850

To record cost of goods sold.

June 20:

Debit Inventory Account with $900

Credit Accounts Payable (Priceless Book Publishers) with $900

To record purchase on account, terms 3/15, n/30.

June 24:

Debit Cash Account with $1,519

Debit Cash Discount with $31

Credit Accounts Receivable (Bell Tower) with $1,550

To record full settlement on account.

June 26:

Debit Accounts Payable (Priceless Book Publishers) with $900

Credit Cash Discount with $27

Credit Cash Account with $873

To record full settlement on account.

June 28:

Debit Accounts Receivable (General Bookstore) with $2,650

Credit Sales with $2,650

To record sale of books on account.

Debit Cost of Goods Sold with $950

Credit Inventory Account with $950

To record cost of goods sold.

June 30:

Debit Sales Account with $210

Credit Accounts Receivable (General Bookstore) with $210

To record books returned.

Debit Inventory with $30

Credit Cost of Goods Sold with $30

To record cost of goods returned.

Explanation:

a) Sales terms of 2/10, n/30 means that all credit sales are granted a cash discount of 2% if payment is received within 10 days and the credit period is for 30 days, beyond which interest will be accrued.  The customer must pay within 30 days, within 10 days to take advantage of the 2% discount.

b) On June 15, Garfunkel Bookstore could not benefit from the discount window since it did not pay within 10 days.  It therefore lost 2% or $24 for paying three days later.

c) Under the perpetual inventory system, inventory movements are reflected in the accounts immediately.  Inventory is tracked continuously.  It is unlike the periodic inventory system where physical count had to be undertaken before records are made in the books.  The perpetual inventory system is more efficient and technology-friendly than the periodic system.

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