Kellet International engaged in the following transactions during November 2017, the first month of the company's fiscal year. Assume the company had no inventory on hand prior to November 3. Kellet International has a periodic inventory system.
Nov. 3 Purchased inventory costing $7,000 on credit terms of 1/10, net eom. The goods were shipped FOB Kellet's warehouse.
9 Returned 20 percent of the inventory purchased on November 3. It was defective.
12 Sold goods for cash, $6,000 (cost, $3,000).
15 Purchased inventory of $15,400, less a $400 quantity discount. Credit terms were 1/15, n/30. The goods were shipped FOB the supplier's warehouse.
16 Paid a $1,200 freight bill on the inventory purchased on November 15.
18 Sold inventory for $9,000 on credit terms of 1/10, n/30 (cost, $4,500).
22 Received merchandise returned from the customer from the November 18 sale, $2,000 (cost, $1,000). Merchandise was the wrong size.
24 Borrowed exactly enough money from the bank to pay for the November 15 purchase in time to take advantage of the discount offered. Signed a note payable to the bank for the net amount.
24 Paid supplier for goods purchased on November 15, less all returns and discounts.
28 Received cash in full settlement of the account from the customer who purchased inventory on November 18, less the return on November 22 and less the discount.
29 Paid the amount owed on account from the purchase of November 3, less the November 9 return.
30 Purchased inventory for cash, $4,640, less a quantity discount of $140.
Required
1. Journalize the transactions and include any calculations in the journal entry explanations.
2. Refer to the Kellet International journal entries in Requirement 1 to set up T-accounts, and post the journal entries to calculate the ending balances for the cost of goods sold equation accounts.
3. Calculate cost of goods sold using an ending inventory value of $16,000.
4. Assume Kellet International has two year-end adjusting entries: (a) accrue accounting expenses of $1,000, and (b) accrue a sale of $2,000 that was completed on November 30 but unrecorded. Record and post the adjusting entries and closing entries for Kellet International.
5. Prepare the financial statements under the periodic inventory system.
6. Refer to the Kellet International journal entries in Requirement 1 above. Assume that the note payable signed on November 24 requires the payment of $250 interest expense. Was the decision to borrow funds to take advantage of the cash discount wise or unwise?
7. Compare the results of the Summary Problem on page 271 with this solution (periodic). What main differences do you notice?