Information related to Kerber Co. is presented below.1. On April 5, purchased merchandise from Wilkes Company for $36,000, terms 3/10, net/30, FOB shipping point.2. On April 6, paid freight costs of $920 on merchandise purchased from Wilkes.3. On April 7, purchased equipment on account for $30,500.4. On April 8, returned damaged merchandise to Wilkes Company and was granted a $4,200 credit for returned merchandise.5. On April 15, paid the amount due to Wilkes Company in full.

Information related to Kerber Co. is presented below.1. On April 5, purchased merchandise from Wilkes Company for $36,000, terms 3/10, net/30, FOB shipping point.2. On April 6, paid freight costs of $920 on merchandise purchased from Wilkes.3. On April 7, purchased equipment on account for $30,500.4. On April 8, returned damaged merchandise to Wilkes Company and was granted a $4,200 credit for returned merchandise.5. On April 15, paid the amount due to Wilkes Company in full.

(a) Prepare the journal entries to record these transactions on the books of Kerber Co. under a perpetual inventory system.

(b) Assume that Kerber Co. paid the balance due to Wilkes Company on May 4 instead of April 15. Prepare the journal entry to record this payment.

Solution:

Kerber Co

a) Journal entries to record transactions under a perpetual inventory system:

April 5:

Debit Inventory Account with $36,000

Credit Accounts Payable (Wikes Co.) with $36,000

To record purchase of merchandise with terms 3/10, net/30, FOB shipping point.

April 6:

Debit Freight In Account with $920

Credit Cash Account with $920

To record payment of freight for purchased goods.

April 7:

Debit Equipment with $30,500

Credit Accounts Payable with $30,500

To record equipment bought on account.

April 8:

Debit Accounts Payable (Wikes Co.) with $4,200

Credit Inventory Account with $4,200

To record return of damaged goods.

April 15:

Debit Accounts Payable (Wikes Co.) with $31,800

Credit Cash account with $30,846

Credit Cash Discount with $954

To record full settlement of account.

b) Journal entry to record payment on May 4:

Debit Accounts Payable (Wikes Co.) with $31,800

Credit Cash account with $31,800

To record full settlement of account.

Explanation:

a) Under a perpetual inventory system, records of inventory transactions are immediately without waiting for the end of a period.  Instead of using the purchases account, which is periodic summary account, inventory account is used and then charged to the cost of goods sold immediately.

A perpetual inventory system tracks inventory movement as they happen.  It is more efficient than the periodic inventory system which records movements in inventory at the period end after a physical count.

b) If payment was made on May 4, the company would not have taken advantage of the cash discount of 3% of $31,800 ($36,000 - $4,200), which is equal to $954.

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