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Inventories (PROBLEM 10-6) : Allyna Rose V. Ojera BSA-2A

This document provides journal entries for inventory transactions under the gross and net methods. For the gross method, entries are provided to record the purchase of merchandise on account, payment of freight costs, a cash payment on the account with a discount taken, and the adjustment to record ending inventory. For the net method, similar entries are provided to record the transactions, with discounts treated as expenses. Computations of ending inventory and cost of goods sold are also shown for each method.

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OJERA, Allyna Rose V. BSA-1B
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2K views18 pages

Inventories (PROBLEM 10-6) : Allyna Rose V. Ojera BSA-2A

This document provides journal entries for inventory transactions under the gross and net methods. For the gross method, entries are provided to record the purchase of merchandise on account, payment of freight costs, a cash payment on the account with a discount taken, and the adjustment to record ending inventory. For the net method, similar entries are provided to record the transactions, with discounts treated as expenses. Computations of ending inventory and cost of goods sold are also shown for each method.

Uploaded by

OJERA, Allyna Rose V. BSA-1B
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 10:

INVENTORIES
(PROBLEM 10–6)
Allyna Rose V. Ojera
BSA-2A
Problem 10–6

Autumn Company provided


the following transactions for
the current year, the first year
of operations.
Required A:
Prepare journal
entries to record
the transactions
using Gross
Method and Net
Method.
GROSS METHOD
1. Purchase of merchandise at an invoice
price of P4,750,000 excluding freight.
Terms are 2/10, n/30.
Account Titles Debit Credit

Purchases 4,750,000

Accounts Payable 4,750,000


GROSS METHOD
2. Freight paid, P250,000. The freight is
allocated to each purchase.

Account Titles and Explanation Debit Credit

Freight In 250,000

Cash 250,000
GROSS METHOD
3. Cash payment on purchases, P3,717,000, of which
P1,617,000 was paid within the discount period.
Account Titles and Explanation Debit Credit
Accounts Payable (1,617,000 / 98%) 1,650,000
Cash 1,617,000
Purchase Discount (1,650,000 x 2%) 33,000

Accounts Payable (3,717,000 – 1,617,000) 2,100,000


Cash 2,100,000
GROSS METHOD
4. It is expected that all discounts on unpaid
accounts payable will be lost.

Account Titles and Explanation Debit Credit

No Entry
GROSS METHOD
5. On December 31, one fifth of the
merchandise remains on hand.

Account Titles and Explanation Debit Credit

Merchandise Inventory (5,000,000 x 1/ 5) 1,000,000

Income Summary 1,000,000


NET METHOD
1. Purchase of merchandise at an invoice
price of P4,750,000 excluding freight.
Terms are 2/10, n/30.
Account Titles and Explanation Debit Credit

Purchases 4,655,000

Accounts Payable (4,750,000 x 4,655,000


98%)
NET METHOD

2. Freight paid, P250,000. The freight is


allocated to each purchase.
Account Titles and Explanation Debit Credit

Freight In 250,000

Cash 250,000
NET METHOD
3. Cash payment on purchases, P3,717,000, of which
P1,617,000 was paid within the discount period.
Account Titles and Explanation Debit Credit
Accounts Payable 1,617,000
Cash 1,617,000

Accounts Payable (2,100,000 x 98%) 2,058,000


Purchase Discount Lost (2,100,000 x 2%) 42,000
Cash (3,717,000 – 1,617,000) 2,100,000
NET METHOD

4. It is expected that all discounts on


unpaid accounts payable will be lost.

Account Titles and Explanation Debit Credit

Purchase Discount Lost [(4,750,000 – 20,000


3,675,000 / 98%) x 2%]
Accounts Payable 20,000
NET METHOD
5. On December 31, one fifth of the
merchandise remains on hand.

Account Titles and Explanation Debit Credit

Merchandise Inventory (4,905,000 x 1/5) 981,000

Income Summary 981,000


GROSS METHOD NET METHOD
1. Purchases 4,655,000
1. Purchases 4,750,000
Accounts Payable 4,655,000
Accounts Payable 4,750,000
2. Freight In 250,000
2. Freight In 250,000
Cash 250,000
Cash 250,000
3. Accounts Payable 1,617,000
3. Accounts Payable 1,650,000
Cash 1,617,000
Cash 1,617,000
Purchase Discount 33,000
Accounts Payable 2,058,000
Purchase Discount Lost 42,000
Accounts Payable 2,100,000
Cash 2,100,000
Cash 2,100,000
4. Purchase Discount Lost 20,000
4. No entry
Accounts Payable 20,000
5. Merchandise Inventory 1,000,000
5. Merchandise Inventory 981,000
Income Summary 1,000,000
Income Summary 981,000
Required B:
Compute
Inventory and
Cost of Sales
under each
method.
GROSS METHOD
Merchandise Inventory – Dec. 31 1,000,000
(4,750,000 + 250,000 x 1/5)

Purchases 4,750,000
Freight In 250,000
Total 5,000,000
Less: Purchase Discount (33,000)
Goods Available for Sale 4,967,000
Less: Merchandise Inventory – Dec. 31 (1,000,000)
Cost of Sales 3,967,000
NET METHOD
Merchandise Inventory – Dec. 31 981,000
(4,655,000 + 250,000 x 1/5)

Purchases 4,655,000
Freight In 250,000
Total 4,905,000
Less: Purchase Discount -
Goods Available for Sale 4,905,000
Less: Merchandise Inventory – Dec. 31 (981,000)
Cost of Sales 3,924,000
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