Question

Vitamin Shoppe Co. sells protein powder. Vitamin shoppe Co purchased the powder from manufacturers throughout the country. Vitamin shoppe started in 2010 with inventory of $200,000

Info. On vitamin shoppe Co. 2010 purchases:

--Bought on account, inventory of $800,000. The purchase terms were 2/10, n/30

--Vitamin shoppe pays within 10 days and gets the discount

--vitamin shoppe uses NET METHOD to record all purchases

--All of Vitamin shoppe purchases are done with F.O.B. shipping point

--The freight-In charged on the purchase made was $30,000

--Inventory, net of discount, costing $40,000, was returned to the protein powder manufacturer

--sales for 2007, all made on account , totaled $830,000

--$424,000 of inventory remained in their stores on 12/31/10

Journalize all of the above using both:

--Close out all temporary accounts relating to inventory

--record the sale

--draw appropriate inventory accounts for each of the methods:

   

1) Period Method

2) Perpetual Method

Answer 1

Perpetual inventory records each transaction in the inventory account as against Periodic inventory system records the inventory when the physical stock counting is made and the closing inventory is recorded.

Journal entries under period inventory method

Date	Account	Debit	Credit	Narration
Yr 2010	Purchase	774,000		For purchase recorded net of return, cash discount and addition of freight cost)
	To Accounts payable		774,000	For purchase recorded net of return, cash discount and addition of freight cost)
Yr end 2010	Inventory	774,000		for net purchases transferred to inventory
	To purchases		774000	for net purchases transferred to inventory
Yr end	Cost of Goods sold	550,000		for Cost of goods ascertained and transferred out from inventory
	To Inventory		550,000	for Cost of goods ascertained and transferred out from inventory
Yr 2010	Account receivable	830,000		for sales during the period
	To Sales		830000	for sales during the period

Journal entries under Perpetual inventory method

Date	Account	Debit	Credit	Narration
Yr 2010	Inventory	784,000		For purchase recorded net of cash discount
	To Accounts payable		784000	For purchase recorded net of cash discount
Yr 2010	Inventory	30,000		For freight cost added to inventory
	To Accounts payable		30,000	For freight cost added to inventory
Yr 2010	Accounts payable	40,000		For purchase return recorded in inventory
	To Inventory		40,000	For purchase return recorded in inventory
Yr 2010	Accounts receivable	830,000		For sales during the period
	To sales		830000	For sales during the period
Yr 2010	Cost of Goods sold	550,000		for Cost of goods ascertained and transferred out from inventory
	To inventory		550,000	for Cost of goods ascertained and transferred out from inventory

Workings for the above journal entries:

Inventory at the beginning of the year 2010	200,000
Purchases	800,000
Cash discount 2% if paid in 10 days	16,000
Net purchase cost	784,000
Purchase return	40,000
Net purchase during the year	744,000
Frieght in	30,000
Inventory at the end of year 2010	424,000
Cost of inventory sold	550,000