Problem 1: Journal entries:
Prepare the necessary general journal entries for the month of October for Stringer Company for each situation given below. Stringer uses a perpetual inventory system.
Oct. 5 Paid operating expenses as follows: $4,000 Salaries Expense, $2,000 Rent Expense, $500 Utilities Expense.
Oct. 8 Purchased merchandise for $25,000 on account. Credit terms: 2/10, n/30.
Oct. 12 Borrowed $25,000 from Sun Bank signing an 8%, 6-month note.
Oct. 15 Returned defective merchandise with a cost of $3,500 and paid balance due for merchandise purchased on October 8. The company takes all discounts to which it is entitled.
Oct. 20 Sold merchandise for $20,000 to Adder Company on account. The cost of the merchandise sold was $12,000. Credit terms: 2/10, n/30.
Oct. 22 Purchased a 2-year insurance policy for $4,400 cash.
Oct. 25 Issued Credit Memo No. 3811 to Adder Company for $2,000 for merchandise returned by Adder from the sale on October 20. The cost of the merchandise returned was $1,025.
Oct. 29 Purchased office equipment for $15,000 paying $4,000 in cash and signing a 3-month, 11% note for the remainder.
Correcting entries
The following errors were made in journalizing and posting transactions in March in the Seal Company.
1. A $1,700 payment for a cash purchase of a 2-year insurance policy was debited to Prepaid Insurance and credited to Accounts Payable.
2. A collection of $4,500 on account from a customer was recorded as a debit to Cash $4,500 and a credit to Sales Revenue $4,500.
3. A bill for $1,550 for new office equipment was debited to Office Supplies $1,550 and credited to Accounts Payable $550.
4. The receipt of $800 from a customer for future service was recorded as a debit to Accounts Receivable $800 and a credit to Service Revenue $800.
Instructions: Prepare the correcting entries at May 31 assuming the incorrect entry is not reversed. (Omit explanations.)
Problem 2: Computation of net purchases/cost of goods sold
Barkley Company uses a periodic inventory system and has the following account balances: Beginning Inventory $50,000, Ending Inventory $70,000, Freight-in $12,000, Purchases $450,000, Purchase Returns and Allowances $8,000, and Purchase Discounts $6,000.
Instructions: Compute each of the following:
(a) Net purchases
(b) Cost of goods available for sale
(c) Cost of goods sold