When to Record Purchase and Sale of Goods in Accounting: Module

School: University of Illinois, Chicago - Course: ACCY 202 - Subject: Accounting

Module 2A(b) Green Sheets 2. Continue with the facts from question #1 but assume the goods were shipped FOB Destination. When should Company A record the purchase of goods from Company B? 3.Continue with the facts from question #1. When should Company B record the sale of goods to Company A? 4.Continue with the facts from question #1 but assume the goods were shipped FOB Destination. When should Company B record the sale of goods to Company A? 5.Brig Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals: A.$770,000. B.$115,000. C.$390,000. D.$402,000. E.$408,000. 6.Which of the following items is typically not reflected in the final recorded value of merchandise inventory? A.The final invoice price. B.Purchase discounts taken. C.Freight Cost paid by the seller, goods shipped FOB-Shipping Point. D.Freight Cost paid by the seller, goods shipped FOB-Destination E.All of the above are typically included. 1. Page 211 Downloaded by Burbank England([email protected])lOMoARcPSD|20851058

7a.CNH started 2006 with $100,000 of merchandise on hand and the inventory account. During 2006, $500,000 in merchandise was purchased on account with credit terms of 2/10 n/45 and shipping terms of f.o.b. destination. The vendor pre-paid the freight charges of $10,000. CNH did not return any of the order and the invoice was paid such that the purchase discount was taken. CNH reported cost of goods sold totaling $200,000. What is the dollar amount of beginning inventory reported at 1/1/2007? A. $190,000 B. $290,000 C. $390,000 D. $400,000 E. $410,000 7b.What is the answer to 7a assuming the shipping terms are FOB SP? Answer Key:1. B2. C3. B4. C5. C6. D7a. C7b. D For questions 8- 15If you can prepare the entries you can answer questions about the scenario. On what date was the inventory recorded on the buyer's books? On what date was the sales revenue recorded on the seller's books? How much cash was paid/received?What gross profit was reported on the seller's income statement?At what value was the inventory reported on the buyer's balance sheet?What is the impact on the balance sheet equation if an entry is/is not made?Pick the answer choice below that shows how you would record X?And so on. Use scratch paper & make all entries!!Solutions are attached. Answer the following for questions #8- #11: •Prepare all entries for Salt & Pepper. •Calculate the carrying value of inventory reported on Salt's books. •Calculate the gross profit reported on Pepper's books. 8.On February 23rd , Salt Company placed an order to purchase inventory on account from Pepper Company. The inventory had a list price of $40,000, and Salt was able to negotiate a 20% trade discount as well as payment terms of 3/10, n/30. The inventory, which had an original cost to Pepper of $16,000, was shipped FOB Shipping point on March 2 and on this date, Pepper paid $3,000 of freight. The order arrived at Salt's facility on March 6th . On March 7th Salt returned $10,000 of merchandise (the returned goods had an original cost to Pepper of $4,000) and on March 8thSalt paid the full balance owed to Pepper Company. 9.Same as #8 but Salt paid the balance owed on March 28 th 10.On February 23rd , Salt Company placed an order to purchase inventory on account from Pepper Company. The inventory had a list price of $40,000, and Salt was able to negotiate a 20% trade discount as well as payment terms of 3/10, n/30. The inventory, which had an original cost to Pepper of $16,000, was shipped FOB Shipping point on March 2. The order arrived at Salt's facility on March 6th and on this date, Salt paid $3,000 of freight. On March 7th Salt returned $10,000 of merchandise (the returned goods had an original cost to Pepper of $4,000) and on March 8th Salt paid the full balance owed to Pepper Company.