Question

1) The Track Shack, a recording studio in Jackson, Mississippi recently ordered $8,750 worth of digital...

1) The Track Shack, a recording studio in Jackson, Mississippi recently ordered $8,750 worth of digital storage media to keep in their warehouse. These media devices (thumb drives, CD's, etc.) will be given to clients/recording artists to hold demo songs, etc. after post production services have been applied to their talents. When delivered the shipment included the printed invoice from MS&C Inc. noting the terms 3/10,n/30.

What would the journal entry look like record the inventory purchase when ordered/delivered if the Track Shack uses the perpetual inventory method?

Item Accounts/Descriptions Post Ref DEBIT CREDIT
1 Merchandise Inventory $8,487.50
   Accounts Payable $8,487.50
2 Merchandise Inventory $8,750.00
   Accounts Payable $8,750.00
3 Accounts Payable $8,750.00
    Merchandise Inventory $262.50
    Cash $8,487.50
4 Accounts Payable $8,487.50
    Cash $8,487.50
A.

Item # 1 is the correct journal entry
B.

Item # 3 is the correct journal entry
C.

Item # 2 is the correct journal entry
D.

Item # 4 is the correct journal entry

2) Please see the preceding information regarding the Track Shack, and previous correct answers to address the following question.

Three days after receiving the digital media inventory the Track Shack finds that $380 worth of the storage devices were damaged in shipping. After calling MS&C about the damaged goods, MS&C agrees to give the Track Shack credit for the bad inventory which was then returned.

How would the Track Shack record this allowance given by MS&C if they have not yet issued payment to MS&C?

Item Accounts/Descriptions Post Ref DEBIT CREDIT
1 Merchandise Inventory $8,370.00
   Accounts Payable $8,370.00
2 Accounts Payable $8,750.00
    Merchandise Inventory $262.50
    (DIA) Damaged Inventory Allowance $380.00
    Cash $8,107.50
3 Accounts Payable $380.00
   Merchandise Inventory $380.00
4 Accounts Payable $8,107.50
    Cash $8,107.50
A.

Item # 1 is the correct journal entry
B.

Item # 4 is the correct journal entry
C.

Item # 3 is the correct journal entry
D.

Item # 2 is the correct journal entry
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Homework Answers

Answer #1

Under the perpetual system, inventory is recorded and updated continuously that is after each purchase and sale.

1) since its purchase accounts have to be updated immediately. And 3/10,n/30 means 3 percent discount will be given if payment is made within 10 days and no discount after that and maximum duration to pay is 30 days.

In the beginning, we dont know when we will be making payment sot its recorded at full value.

2nd IS CORRECT so OPTION C is right answer

Merchandising inventory 8750
Accounts payable 8750
(To record purchase of inventory on account

2) Since payment is not paid in 3 days so inventory return will be recorded at full cost.

entry is reversal of purchase entry

Accounts payable 380
Merchandising inventory 380
(To record return of inventory)

3Rd JOURNAL ENTRY IS CORRECT SO OPTION C IS CORRECT

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