USe this information for the next 5 questions for Jones0Ja. 2, 14 beaining inven
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Question
USe this information for the next 5 questions for Jones0Ja. 2, 14 beaining inventory accounting system) is as follows Jan. 2: J terms of 1/10, N/30. Jan. 10: Jones paid for the 14: Jones sold to a customer on account, te at a sales price of $500 each it was the wrong color r ones purchased 20 tables at $300 each on account e 20 tables purchased on Jan. 2, net of the discount. Jan Furniture Store (assume Jones uses a perpetua n Jan. 2 0 ta/a t, with terms of 3/10, N/30, five of the tables purchase. r and receivedthe customer returned one of the tables sold on Jan e qjer the Jan. 16 return, less the discount for early payment r on her account. Jan. 23. The customer paid the remaining 6. The journal entry by Jones for the Jan. 2 purchase Cost of Goods Sold ,000 b. Inventory Accounts Payable 5,000 ash 6,000 . Purchases Accounts Payable Purchases ,000 ash ,000 D. d E. none of these The journal entry by Jones for the Jan. 10 payment would include a credit to A. Accounts Payable for $6,000 B. Cash for $6,000. C. Inventory for $60. D. Sales Discounts for $60. E. none of these 7. The journal entry(ies) by Jones for the Jan. 14 sale wo A. Sales Revenue and Inventory. B. Sales Revenue and Cost of Goods Sold. C. Ac 8. counts Receivable and Inventory counts Receivable and Sales Revenue. E. none of theseExplanation / Answer
Answers
On Jan 16: 5 tables were sold at $ 500 each. Total Sales revenue = $ 500 x 5 = $ 2,500
When Sales is made, Sales Revenue is recorded by crediting Sales revenue. If Cash is received, Cash is debited, if Sales are on account, the Accounts receivables account is debited.
Also, while using Perpetual method of inventory valuation, cost of goods sold is adjusted to inventory after each sale by Debiting cost of goods sold account and crediting Inventory account.
Hence, the two accounts that gets debited are: Accounts receivables and Cost of Goods Sold.
Correct answer is therefore: Option ‘A’
Amount of Sale was $ 2,500
One table of $ 500 was returned. This means that now only $ 2,000 was to be received.
Also, the discount term dictates that 3% discount will be given if payment is made within 10 days (3/10)
Payment is made within 10 days, Discount will be $ 2000 x 3% = $ 60
Amount received from Accounts receivables = 2000 – 60 =$ 1,940
Journal Entry would be:
Cash debited by $ 1940
Sales Discount debited by $ 60, and
Accounts receivables credited by $ 2,000
Correct Answer: Option ‘B’: Accounts receivables for $ 2,000
---Working---
>Bad Debt Expense as per Percentage of Sales Method
A
Credit Sales for the year
$ 150,000.00
B
Percentage of sales method %
4%
C =A x B
Amount of Bad Debt Expenses
$ 6,000.00
>Bad Debt Expenses as per Allowance Method
A
Accounts receivables balance
$ 135,000.00
B
Allowance Method %
2.5%
C = A x B
Adjusted Allowances for Bad Debt balance
$ 3,375.00
D
Unadjusted Balance of Allowances account
$ 4,000.00
E = C + D
Amount of Bad Debt Expenses
$ 7,375.00
>Answer
Bad Debt Expenses as per Allowance Method
$ 7,375.00
Bad Debt Expense as per Percentage of Sales Method
$ 6,000.00
Difference
$ 1,375.00
Correct Answer
Option 'E': Bad Debt Expense using Allowance Method is HIGHER by $ 1,375.
A
Credit Sales for the year
$ 150,000.00
B
Percentage of sales method %
4%
C =A x B
Amount of Bad Debt Expenses
$ 6,000.00
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