Exercise 4-7A Effect ofpurchase returns and allowances andfreight costs on the j
ID: 2426308 • Letter: E
Question
Exercise 4-7A Effect ofpurchase returns and allowances andfreight costs on the journal, ledger, andfinancial statements: Perpetual system
AccountTitles
Debit$16,000
Credit
Inventory
8,000
CommonStock
$20,000
RetainedEarnings
4,000
The trial balance for Terry's Auto Shop as of January l, 2016, follows:
Total $24 000 $24 000
The following events affected the company during the 2016 accounting period:
1- Purchased merchandise on account that cost Sl 5,000.
2- The goods in Event I were purchased FOB shipping point with freight cost of $800 cash
3- Returned $2,600 of damaged merchandise for credit on account.
4- Agreed to keep other damaged merchandise for which the company received an $1,100 allowance.
5- Sold merchandise that cost $15,000 for S31,000 cash.
6.Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $500 cash.
7- Paid $8,000 on the merchandise purchased in Event I.
Required
a. Record the events in general journal format.
b. Open general ledger T-accounts with the appropriate beginning balances, and post the journal entries to the T-accounts.
c. Prepare an income statement, balance sheet, and statement of cash flows. (Assume that closing entries have been made.)
d.Explain why a difference does or does not exist between net income and net cash flow from operating activities.
AccountTitles
Debit$16,000
Credit
Inventory
8,000
CommonStock
$20,000
RetainedEarnings
4,000
Explanation / Answer
a)
1. Inventory Dr. $5000
To accounts Payable $5000
2. inventory Dr.$800
To cash 800
3. Accounts payable Dr.$2600
To inventory $2600
4. Accounts payable Dr.$1100
To inventory $1100
5. cash Dr.$31000
cost of goods sold Dr.$15000
To sale 31000
To inventory 15000
6. inventory Dr.$500
To cash 500
7. Accounts payable Dr.$8000
To cash 8000
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