Travel Warehouse distributes suitcases to retail stores and extends credit terms of n/30 to all of its customers. Travel Warehouse uses a perpetual inventory system and at the end of June its inventory consisted of 25 suitcases purchased at $30 each. During the month of July, the following merchandising transactions occurred:

July 1 Purchased 50 suitcases on account for $30 each from Trunk Manufacturers, terms n/30, FOB destination.

2 The correct company paid $125 freight on the July 1 purchase.

4 Received $150 credit for five suitcases returned to Trunk Manufacturers because they were damaged.

10 Sold 45 suitcases on account to Satchel World for $55 each.

12 Issued a $275 credit for five suitcases returned by Satchel World because they were the wrong colour.

The suitcases were returned to inventory.

15 Purchased 60 additional suitcases from Trunk Manufacturers for $27.50 each, terms n/30, FOB shipping point.

18 Paid $150 freight to AA Trucking Company for merchandise purchased from Trunk Manufacturers.

21 Sold 54 suitcases on account to Fly-By-Night for $55 each.

23 Gave Fly-By-Night a $110 credit for two returned suitcases. Th e suitcases had been damaged and were sent to the recyclers.

30 Paid Trunk Manufacturers for the July 1 purchase.

31 Received balance owing from Satchel World.

Instructions

(a) Record the transactions for the month of July for Travel Warehouse.

(b) Create a T account for Merchandise Inventory. Post the opening balance and July's transactions, and calculate the July 31 balance.

(c) Determine the number of suitcases on hand at the end of the month and calculate the average cost per suitcase of the inventory on hand.

Taking It Further

Explain how freight terms can affect the selling price, and the cost, of merchandise. Use the transactions on July 1 and 15 between Travel Warehouse and Trunk Manufacturer as part of your explanation.