Some of the transactions of Collins Corp during August follow. Collins uses the periodic inventory method

Aug

10 Purchased merchandise on account, $12 000, terms 2/10, n/30

13 Returned $1 200 of the purchase of August 10 and received a credit on account

15 Purchased merchandise on account, $16 000, terms 1/10, n/60

25 Purchased merchandise on account, $20 000, terms 2/10, n/30

28 Paid the invoice of August 15 in full

Instructions:

1. Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken

Prepare general journal entries to record the transactions

Describe how the various items would be shown in the financial statements

2. Assuming that purchases are recorded in net amounts and that discounts lost are treated as financial expenses:

Prepare general journal entries to enter the transactions

Prepare the adjusting entry that is necessary on August 31 if financial statements are prepared at that time

Describe how the various items would be shown in the financial statements

3. Which method results in higher reported gross profit ratio? Explain

Answer rating: 100% (QA)

1 Gross amount 2 Net amounts 3 Under Method of Gross amount Gross Profi... View the full answer