Chapter 7
Inventory: Merchandising Transactions
196
Review Exercise
Part 1
The following transactions occurred between George’s Gardening Supplies and Michael’s
Distributing during the month of December 2016.
Dec 3 George’s Gardening Supplies purchased $50,000 of inventory on account from
Michael’s Distributing.The purchase terms were 2/10 n/30.The cost of the goods to
Michael’s Distributing was $35,000.
Dec 6 Freight charges of $200 were paid in cash by the company which incurred them.
Dec 8 George’s Gardening Supplies returned $2,000 of incorrect merchandise from the
purchase on December 3. Michael’s Distributing put the merchandise back into
inventory.The cost of the goods to Michael’s Distributing was originally $700.
Dec 11 George’s Gardening Supplies paid the balance owing to Michael’s Distributing.
Assuming that both companies use the perpetual inventory system, complete the following
exercise.
Required
a) Journalize the December transactions for George’s Gardening Supplies. Assume the goods
from December 3 were shipped FOB shipping point.
b) Journalize the December transactions for Michael’s Distributing. Assume the goods from
December 3 were shipped FOB destination.
See Appendix I for solutions.
