Question

Inventory Systems (5 MARKS) Dubai Retail Company began operations in August and completed these transactions during the first month of operations.

Aug. 1 Purchased OMR 8,000 of merchandise from V. Co. with terms of 2/10 n/30.

Aug. 2 Paid OMR 200 in shipping costs for merchandise purchased from V. Co.

Aug. 5 Returned OMR 500 of goods to V. Co. due to defects.

Aug. 7 Sold OMR 8,000 of goods to C. Co. with terms of 3/10 n/40 (the goods cost OMR 5,000).

Aug. 8 Paid V. Co. with check #844.

Aug. 10 Purchased OMR 7,000 of goods for resale from W. Co. with terms 3/5 n/45. Aug. 11 C. Co. returned OMR 200 of merchandise.

Aug. 12 Sold OMR 4,000 of merchandise to Ali Co. with terms 3/10 n/40 (the goods cost OMR 2,500).

Aug. 14 Received full payment from C. Company.

Aug. 25 Paid W. Co. in full.

Aug. 28 Received full payment from Ali Co.

Required:

a. Prepare journal entries to record these transactions using perpetual inventory system. b. Prepare journal entries to record these transactions using periodic inventory system. c. Under what circumstances would the perpetual and periodic inventory systems be used? Which type of companies would normally use perpetual and periodic inventory system? Explain.