Book 2 - Chapter 22

Multiple Choice

d A purchase discount is recorded when payment is made.

a The payment is within the discount period, so $5,000 × .02 = $100.

b The discount is ($1,000/.98) = $1,020.41 − $1,000 = $20.41 discount.

d ($2,500 × .99) + $150 = $2,625

d The return of the inventory increases inventory and reduces cost of goods sold.

10.

11.

12.

b Consignment of inventory does not change the ownership of the inventory.

13.

Reinforcement Problems

LG 22-1.

a.	The new contra accounts are sales returns and allowances and sales discounts. They reduce net sales, thereby reducing net income.
b.	FOB means “free on board” and for most merchants refers to the location during the shipping process at which title (ownership) of the merchandise transfers to the buyer. It is also used to refer to the location, up to which the seller is responsible for the shipping costs and after which the buyer is responsible for shipping costs (if no other shipping arrangement is made between them). FOB is especially important to determine exactly when a sale may properly be recorded and when a buyer must claim ownership of the merchandise.
c.	In a perpetual system, inventory shrinkage is recorded by an adjusting entry that debits Cost of Goods Sold and credits Merchandise Inventory.
d.	The buyer will pay $1,000 × .8 × .98 = $784. A trade discount is an adjustment to the list price of merchandise, often given for large quantity or special-situation purchases. A purchase discount (the 2/10, n/30 terms) is given for quick payment; in this case, within 10 days. The trade discount is always calculated first and is generally not recorded as a separate item.
e.	A purchase return and allowance is recorded by the buyer. It records the amount of credit received from the seller for unsatisfactory merchandise. The same credit recorded on the books of the seller is a sales return and allowance.

LG 22-2.

$3,970

$14,911

$3,000 ($147,000/.98 = $150,000 − $147,000)

$5,769

$169,444

$3,180 ($159,000 × .02 = $3,180)

$155,820

$13,470

$220,500 ($4,410/.02 = $220,500)

j $845 (calculate k first)

$215,010


	Beginning inventory
	Purchases
	Freight-in
	Cost of goods available
	Ending inventory

	Merchandise Inventory
	−0−
	220,500	4,410
	845	1,925
	215,010
	11,200	203,810



	Purchase discounts
	Purchase returns

	Cost of goods sold

	Cost of Goods Sold




	203,810

Learning Goal 22

SOLUTIONS

Learning Goal 22: Explain and Use the Perpetual Inventory Method

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