Math / Data & Statistics

QuestionMary's TV uses a perpetual inventory system. The following are three recent merchandising transactions: Mar. 6 Purchased eight TVs from Whosa Industries on account. Invoice price, $\$ 350$ per unit, for a total of $\$ 2,800$ . The terms of purchase were $2 / 10, n / 30$ . Mar. 11 Sold two of these televisions for $\$ 600$ cash. Mar. 16 Paid the account payable to Whosa Industries within the discount period. Instructions a. Prepare journal entries to record these transactions assuming that Mary's records purchases of merchandise at:
1. Net cost
2. Gross invoice price b. Assume that Mary's did not pay Whosa Industries within the discount period but instead paid the full invoice price on April 6. Prepare journal entries to record this payment assuming that the original liability had been recorded at:
1. Net cost
2. Gross invoice price c. Assume that you are evaluating the efficiency of Mary's bill-paying procedures. Which accounting method-net cost or gross invoice priceprovides you with the most useful information? Explain.

Studdy Solution

STEP 1

1. Mary's TV uses a perpetual inventory system.
2. The terms of purchase are $2/10, n/30$ , meaning a 2% discount is available if paid within 10 days, otherwise the net amount is due in 30 days.
3. The transactions involve both purchases and sales of merchandise.
4. Journal entries are required for both net cost and gross invoice price methods.
5. Evaluation of efficiency is based on the accounting method used.

STEP 2

1. Record transactions under the net cost method.
2. Record transactions under the gross invoice price method.
3. Record payment outside the discount period under the net cost method.
4. Record payment outside the discount period under the gross invoice price method.
5. Evaluate the efficiency of the accounting methods.

STEP 3

Record the purchase on March 6 under the net cost method:
- Calculate the net cost: $\$2,800 \times (1 - 0.02) = \$2,744$ . - Journal Entry: - Debit Inventory: $\$2,744$ - Credit Accounts Payable: $\$2,744$

STEP 4

Record the sale on March 11:
- Two TVs sold for $\$600$ . - Cost of goods sold for two TVs: $\$2,744 \div 8 \times 2 = \$686$ . - Journal Entry: - Debit Cash: $\$600$ - Credit Sales Revenue: $\$600$ - Debit Cost of Goods Sold: $\$686$ - Credit Inventory: $\$686$

STEP 5

Record the payment on March 16 under the net cost method:
- Payment within discount period, no further entry needed as it was recorded at net cost.

STEP 6

Record the purchase on March 6 under the gross invoice price method:
- Journal Entry: - Debit Inventory: $\$2,800$ - Credit Accounts Payable: $\$2,800$

STEP 7

Record the sale on March 11 (same as net cost method):
- Journal Entry: - Debit Cash: $\$600$ - Credit Sales Revenue: $\$600$ - Debit Cost of Goods Sold: $\$686$ - Credit Inventory: $\$686$

STEP 8

Record the payment on March 16 under the gross invoice price method:
- Calculate discount: $\$2,800 \times 0.02 = \$56$ . - Journal Entry: - Debit Accounts Payable: $\$2,800$ - Credit Cash: $\$2,744$ - Credit Inventory (Discount): $\$56$

STEP 9

Record payment on April 6 under the net cost method:
- Journal Entry: - Debit Accounts Payable: $\$2,744$ - Debit Inventory (Discount Lost): $\$56$ - Credit Cash: $\$2,800$

STEP 10

Record payment on April 6 under the gross invoice price method:
- Journal Entry: - Debit Accounts Payable: $\$2,800$ - Credit Cash: $\$2,800$

STEP 11

Evaluate the efficiency of the accounting methods:
- The net cost method provides more useful information for evaluating efficiency as it immediately reflects the cost savings from discounts, encouraging timely payments and showing the true cost of inventory.

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Studdy Solution

STEP 1

STEP 2

STEP 3

Record the purchase on March 6 under the net cost method:
- Calculate the net cost: $\$2,800 \times (1 - 0.02) = \$2,744$ . - Journal Entry: - Debit Inventory: $\$2,744$ - Credit Accounts Payable: $\$2,744$

STEP 4

Record the sale on March 11:
- Two TVs sold for $\$600$ . - Cost of goods sold for two TVs: $\$2,744 \div 8 \times 2 = \$686$ . - Journal Entry: - Debit Cash: $\$600$ - Credit Sales Revenue: $\$600$ - Debit Cost of Goods Sold: $\$686$ - Credit Inventory: $\$686$

STEP 5

Record the payment on March 16 under the net cost method:
- Payment within discount period, no further entry needed as it was recorded at net cost.

STEP 6

Record the purchase on March 6 under the gross invoice price method:
- Journal Entry: - Debit Inventory: $\$2,800$ - Credit Accounts Payable: $\$2,800$

STEP 7

Record the sale on March 11 (same as net cost method):
- Journal Entry: - Debit Cash: $\$600$ - Credit Sales Revenue: $\$600$ - Debit Cost of Goods Sold: $\$686$ - Credit Inventory: $\$686$

STEP 8

Record the payment on March 16 under the gross invoice price method:
- Calculate discount: $\$2,800 \times 0.02 = \$56$ . - Journal Entry: - Debit Accounts Payable: $\$2,800$ - Credit Cash: $\$2,744$ - Credit Inventory (Discount): $\$56$

STEP 9

Record payment on April 6 under the net cost method:
- Journal Entry: - Debit Accounts Payable: $\$2,744$ - Debit Inventory (Discount Lost): $\$56$ - Credit Cash: $\$2,800$

STEP 10

Record payment on April 6 under the gross invoice price method:
- Journal Entry: - Debit Accounts Payable: $\$2,800$ - Credit Cash: $\$2,800$

STEP 11

Evaluate the efficiency of the accounting methods:
- The net cost method provides more useful information for evaluating efficiency as it immediately reflects the cost savings from discounts, encouraging timely payments and showing the true cost of inventory.

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Studdy Solution

STEP 1

STEP 2

STEP 3

Record the purchase on March 6 under the net cost method:- Calculate the net cost: $2,800×(1−0.02)=$2,744 \$2,800 \times (1 - 0.02) = \$2,744 $2,800×(1−0.02)=$2,744. - Journal Entry: - Debit Inventory: $2,744 \$2,744 $2,744 - Credit Accounts Payable: $2,744 \$2,744 $2,744

STEP 4

STEP 5

Record the payment on March 16 under the net cost method:- Payment within discount period, no further entry needed as it was recorded at net cost.

STEP 6

Record the purchase on March 6 under the gross invoice price method:- Journal Entry: - Debit Inventory: $2,800 \$2,800 $2,800 - Credit Accounts Payable: $2,800 \$2,800 $2,800

STEP 7

Record the sale on March 11 (same as net cost method):- Journal Entry: - Debit Cash: $600 \$600 $600 - Credit Sales Revenue: $600 \$600 $600 - Debit Cost of Goods Sold: $686 \$686 $686 - Credit Inventory: $686 \$686 $686

STEP 8

Record the payment on March 16 under the gross invoice price method:- Calculate discount: $2,800×0.02=$56 \$2,800 \times 0.02 = \$56 $2,800×0.02=$56. - Journal Entry: - Debit Accounts Payable: $2,800 \$2,800 $2,800 - Credit Cash: $2,744 \$2,744 $2,744 - Credit Inventory (Discount): $56 \$56 $56

STEP 9

Record payment on April 6 under the net cost method:- Journal Entry: - Debit Accounts Payable: $2,744 \$2,744 $2,744 - Debit Inventory (Discount Lost): $56 \$56 $56 - Credit Cash: $2,800 \$2,800 $2,800

STEP 10

Record payment on April 6 under the gross invoice price method:- Journal Entry: - Debit Accounts Payable: $2,800 \$2,800 $2,800 - Credit Cash: $2,800 \$2,800 $2,800

STEP 11

Evaluate the efficiency of the accounting methods:- The net cost method provides more useful information for evaluating efficiency as it immediately reflects the cost savings from discounts, encouraging timely payments and showing the true cost of inventory.

Get Studdy

Studdy solves anything!

Start learning now

Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

Record the purchase on March 6 under the net cost method:
- Calculate the net cost: $\$2,800 \times (1 - 0.02) = \$2,744$ . - Journal Entry: - Debit Inventory: $\$2,744$ - Credit Accounts Payable: $\$2,744$

Record the payment on March 16 under the net cost method:
- Payment within discount period, no further entry needed as it was recorded at net cost.

Record the purchase on March 6 under the gross invoice price method:
- Journal Entry: - Debit Inventory: $\$2,800$ - Credit Accounts Payable: $\$2,800$

Record the sale on March 11 (same as net cost method):
- Journal Entry: - Debit Cash: $\$600$ - Credit Sales Revenue: $\$600$ - Debit Cost of Goods Sold: $\$686$ - Credit Inventory: $\$686$

Record the payment on March 16 under the gross invoice price method:
- Calculate discount: $\$2,800 \times 0.02 = \$56$ . - Journal Entry: - Debit Accounts Payable: $\$2,800$ - Credit Cash: $\$2,744$ - Credit Inventory (Discount): $\$56$

Record payment on April 6 under the net cost method:
- Journal Entry: - Debit Accounts Payable: $\$2,744$ - Debit Inventory (Discount Lost): $\$56$ - Credit Cash: $\$2,800$

Record payment on April 6 under the gross invoice price method:
- Journal Entry: - Debit Accounts Payable: $\$2,800$ - Credit Cash: $\$2,800$

Evaluate the efficiency of the accounting methods:
- The net cost method provides more useful information for evaluating efficiency as it immediately reflects the cost savings from discounts, encouraging timely payments and showing the true cost of inventory.