problem one

please note the following

- incorporate GST into this problem. These figuresinclude GST: $580,000 and $28,000. The $364,8000 is net of GST. Theindirect GST tax rate is 15%.

- Round to 2 decimal places

- omit narrations and referencing

1. On December 3, Li sold HK$580,000 ofmerchandise on account to South China Ltd. terms 1/10, n/30, FOBshipping point. The cost of the merchandise sold wasHK$364,800.

2. On December 8, South China was grantedan allowance of HK$28,000 for merchandise purchased on December3.

3. On December 13, Li received the balancedue from South China.

a) Prepare the journal entries to recordthe three transactions on the books of Li, using the perpetualinventory system, in the table provided.

		DR	CR
1.
2.
3.

b) Prepare the journal entries to recordthe three transactions on the books of South China Ltd, using theperpetual inventory system, first under the gross purchases method,then under the net purchases method, in the table provided.

	Gross purchase method			Net-purchases method:
		Dr	Cr		Dr	Cr
1.
2.
3.

c) In a) and b), you recorded SouthChina’s payment within the discount period. Now assume that SouthChina paid after the discount period. Prepare the journal entriesfor both Li and South China under this assumption, in the tableprovided. For South China, do so under both the gross and netpurchase methods.

Li's journal entry

		Dr	Cr
3.

south chinas journal entry

	gross-purchase method:			net-purchases method:
3.		Dr	Cr.		Dr.	Cr.

d) The account Discounts Lost exists onlyunder the net purchase method. If this account has a balance at theend of the accounting period, identify which financial statementand where on that financial statement the account should be found.Explain why.