Question

On October 5, Ivanhoe Company buys merchandise on account from Pharoah Company. The selling price of the goods is $5,240, and the cost to Pharoah Company is $3,180. On October 8, Ivanhoe Company returns defective goods with a selling price of $640 and a scrap value of $310. Record the transactions on the books of Pharoah Company, assuming a perpetual approach. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title to record credit sales Inventory enter a debit amount enter a credit amount enter an account title to record credit sales Accounts Payable enter a debit amount enter a credit amount (To record credit sales) enter an account title to record cost of goods sold on account Accounts Payable enter a debit amount enter a credit amount enter an account title to record cost of goods sold on account Inventory enter a debit amount enter a credit amount (To record cost of goods sold on account) choose a transaction date enter an account title to record credit granted for receipt of returned goods Accounts Receivable enter a debit amount enter a credit amount enter an account title to record credit granted for receipt of returned goods Sales Revenue enter a debit amount enter a credit amount (To record credit granted for receipt of returned goods) enter an account title to record scrap value of goods returned enter a debit amount enter a credit amount enter an account title to record scrap value of goods returned enter a debit amount enter a credit amount (To record scrap value of goods returned)

Answer 1

For Pharoah Company, the merchandise sale to Ivanhoe Company is recorded as a credit to Sales Revenue and a debit to Accounts Receivable. The cost of goods sold is recorded as a debit to Cost of Goods Sold and a credit to Inventory. Upon return of defective goods, a debit is made to Sales Returns and Allowances and a credit to Accounts Receivable, and the scrap value is recorded as a debit to Inventory and a credit to Cost of Goods Sold.

Step-by-step explanation:

For the Pharoah Company, the transactions need to be recorded using the perpetual inventory system. On October 5, when Ivanhoe Company purchases merchandise on account, two journal entries are needed:

• To record the sales revenue
• To record the cost of goods sold

Then, on October 8, when Ivanhoe returns the defective goods, two additional journal entries are required:

• To record the return of sales
• To adjust inventory for the scrap value of the returned goods

Journal Entries:

October 5:

• Accounts Receivable: $5,240
• Sales Revenue: $5,240
• (To record credit sales)
• Cost of Goods Sold: $3,180
• Inventory: $3,180
• (To record cost of goods sold on account)

October 8:

• Sales Returns and Allowances: $640
• Accounts Receivable: $640
• (To record credit granted for receipt of returned goods)
• Inventory: $310
• Cost of Goods Sold: $310
• (To record scrap value of goods returned)

Answer 2

From Pharaoh's point of view:

October 5, merchandise sold on account to Ivanhoe Company

Dr Accounts receivable 5,240

Cr Sales revenue 5,240

Dr Cost of goods sold 3,180

Cr Inventory 3,180

October 8, defective merchandise is returned

Dr Sales returns and allowances 640

Cr Accounts receivable 640

Dr Inventory 310

Cr Cost of goods sold 310

From Ivanhoe's point of view:

October 5, merchandise sold on account from Pharaoh Company

Dr Inventory 5,240

Cr Accounts payable 5,240

October 8, defective merchandise is returned

Dr Accounts payable 640

Cr Inventory 640