Question 1 (23 marks)

Olivia Company completed the following transactions in December 2021. All purchased goods are received by Olivia Company and sold goods are delivered before the end of the month. Olivia uses perpetual inventory system. It records purchase and sales at gross amount.

2 Dec	Purchased goods from Switch Co. for $88,000 with the terms of 1/10, n/30.
4	Sold goods on account $32,000, terms 1/15, n/30, to Fun Limited. The cost of goods sold was $18,100.
7	Returned the defective goods costing $21,000 purchased on 2 December to Switch Co.
8	Paid $5,400 for transportation cost of 4 December sale.
13	Fun Limited returned $5,000 of unsatisfactory goods from the 4 December sale to Olivia Company. Olivia Company's cost for these goods was $1,300.
15	Purchased goods from Switch Co. for $38,000 with the terms of 2/10, n/30.
18	Received collections in full, from the Fun Limited for the sales in December.
25	Paid the outstanding amounts owed to Switch Co. in full.
31	Found inventory shortfall of $1,000 in the month-end physical count.

Required

1. Prepare the journal entries to record the above transactions of Olivia Company.

(21 marks)

Assume Olivia Company has a financial year ended at 31 December and some purchased goods are not received by Olivia Company before the end of December. Explain FOB destination point and discuss how this may affect the correctness of recording all purchase transactions of goods ordered in December.