Problem 1 Ch 5 Tic Toc Clock Shop Reported The Following Mer

Problem 1 Ch 5tic Toc Clock Shop Reported The Following Merchandisin

Prepare journal entries to record each merchandising-related transaction for Tic Toc Clock Shop during June, including purchases, sales, payments, and adjustments based on terms and conditions specified. Record the following specific transactions: Purchase of clocks, sales on account, payments including discounts, freight charges, and damage adjustments, ensuring accurate reflection of inventory activity and receivables management.

Paper For Above instruction

The June transactions at Tic Toc Clock Shop encapsulate essential aspects of merchandising accounting, including inventory purchases, sales, credit terms, freight handling, discounts, and inventory adjustments due to damage. Each activity impacts the company's financial statements and requires precise journal entries adhering to accounting principles.

On June 3, Tic Toc Clock Shop purchased $4,000 worth of clocks from Swiss Time, with terms 1/10, n/30, FOB destination. Under FOB destination, the seller retains ownership until the product reaches the buyer, which influences when the purchase is recorded. Since the shop records all purchases "gross," the initial entry is a debit to inventory (or Purchases) and a credit to Accounts Payable for the full amount of $4,000.

On June 5, the shop sold a clock valued at $1,500 to Janci Holgren on account, with terms 2/10, n/eom. The sale involves recognizing revenue and accounts receivable. Because the customer picked up the clock, the terms are net 10 days, with a 2% discount if paid within 10 days. The initial entry records the sale at gross, with a debit to Accounts Receivable and a credit to Sales. When payment is made on June 27, the shop applies the 2% discount if applicable, reducing the receivable and recognizing the cash received.

On June 9, Tic Toc paid for the purchase made on June 3, taking advantage of the 1% discount, which affects the cash and Accounts Payable accounts, reducing liabilities and increasing expenses rather than inventory if discounts pertain to purchases.

Similarly, on June 11, the shop purchased $8,000 of clocks from Melbourne Clockworks with terms 2/10, n/30, FOB shipping point, meaning ownership transfers at shipment, and freight charges of $460 were prepaid by Melbourne and added to the invoice, totaling $8,460. The purchase is recorded at gross, including freight, with an entry debiting inventory and crediting accounts payable, reflecting the total cost including freight.

On June 19, a clock worth $3,500 was sold on account, with terms 2/10, n/eom, FOB destination. Freight charges of $330 were paid by the shop, affecting inventory costs. The sale is recorded at gross, with revenue recognized at the sale price, and freight added to inventory cost if considered part of the product cost. The sale involves debiting Accounts Receivable and crediting Sales, with freight included in cost of goods sold as appropriate.

By June 23, damage was reported on the June 19 clock, prompting a reduction of 20% in the invoice. The shop adjusts accounts receivable accordingly, recognizing the loss or reduction in receivable value due to damage, compensated perhaps by a credit or a reduction of receivable balance.

On June 27, the shop paid Melbourne Clockworks for the June 11 purchase, settling the account, reflecting a debit to Accounts Payable and a credit to Cash, with discounts or freight adjustments as applicable. The same date, Janci Holgren paid for the June 5 purchase, acknowledging the earlier sale, and finalized the receivable settlement.

Finally, on June 28, Tic Toc Clock Shop received payment for the remaining balance due from the June 19 sale, reflecting an inflow of cash and reduction of receivables.

To accurately record all transactions, journal entries must encompass inventory management with considerations for FOB terms, freight costs, discounts, damage adjustments, and receivable collections, aligning with Generally Accepted Accounting Principles (GAAP). This ensures transparent, consistent, and compliant financial reporting for Tic Toc Clock Shop during June.

References

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