Q2SE - Horngren'S Financial And Managerial Accounting

Question

Consider the following transactions for Toys and More:

May 8 Toys and More buys \(113,300 worth of MegoBlock toys on account with credit terms of 2/10, n/60.

       12 Toys and More returns \)11,250 of the merchandise to MegoBlock due to   damage during shipment.

       15 Toys and More paid the amount due, less the return and discount.

Requirements 

1. Journalize the purchase transactions. Explanations are not required. 

2. In the final analysis, how much did the inventory cost Toys and More?

Step-by-Step Solution

Answer

Answer

The cost of inventory is $100,009.

Step 1: Meaning of Purchases

In accounting, the term purchases denote the acquisition of goods to resell them to generate revenues. The acquisition of goods is either done on cash or credit and recorded differently under periodic and perpetual inventory systems.

 

Step 2: Journal entries for purchase transactions

Date	Accounts and Explanation	Debit ($)	Credit ($)
May 8	Merchandise inventory	113,300
	Accounts payable		113,300
May 12	Accounts payable	11,250
	Merchandise inventory		11,250
May 15	Accounts payable (113,300-11,250)	102,050
	Cash (102,050-2041)		100,009
	Merchandise inventory (102,050*2%)		2,041

Step 3: Computation of inventory cost

$\begin{array}{rcl}\mathrm{Inventory} \mathrm{cost}& =& \mathrm{Value} \mathrm{of} \mathrm{inventory}-\mathrm{Returns}-\mathrm{Discount}\\ & =& \$113,300-\$11,250-\$2,041\\ & =& \$100,009\end{array}$