a. Microprints Inc. had the following transactions for the month of August 20X1

Question

a. Microprints Inc. had the following transactions for the month of August 20X1 Aug. 2 Sold merchandise on account for $25,000; terms 2/10, n/30, FOB shipping point, freight collect. 18 Received payment for the sale of August 2. 20 A total of $1,000 of the merchandise sold on August 2 was returned, and a full refund was made because it was the wrong merchandise. 28 An allowance of $1,300 was granted on the sale from August 2 because some merchandise was damaged; $1,300 cash was returned to the customer. b. Ashley Company engaged in the following transactions in August 20x1: Aug. 4 Purchased merchandise on account at a cost of $ 14,000; terms 2/10, n/30, FOB shipping point, freight collect. 6 Paid freight of $200 on the purchase of August 4. 10 Sold goods for $10,000; terms 2/10, n/30. 12 Returned to the vendor, $2,400 worth of the merchandise purchased on August 4. 14 Paid the amount due on the purchase of August 4. Requirement: 1. Prepare journal entries for both Microprints and Ashley transactions assuming: i. Periodic system. ii. Perpetual system. 2. Your client has asked for advice on whether to use the perpetual or periodic inventory system. Recommend an inventory system giving reasons why it is best for your client.

Explanation / Answer

ANSWER:

Journal Entries:

Problem A

Problem B

Calculation of Discount:

Purchase = $14,000 -$ 2,400 (Return)

Discount = $11,600 x 2% = $232

Date Account Title Debit Credit Aug 2 Account Receivable $25,000 Sales $25,000 (Recording of Sales on account) Aug 18 Cash $25,000 Account Receivable $25,000 (Recording of payment for sales) Aug 20 Sales Return $1,000 Cash $1,000 (Recording of Sales return) Aug 28 Sales Return and Allowance $1,300 Cash $1,300 (Recording of Allowance for Sales Return)

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