Question

During its first year of operations, Tron Auto Dealership (TAD) bought vehicles from a manufacturer on account at a cost of $608,000. TAD returned $152,000 of these vehicles to the manufacturer for credit on its account. TAD then sold $380,000 of the remaining vehicles at a selling price of $685,000. TAD’s customers rarely return vehicles, so TAD records sales returns only as they occur. One customer did return a vehicle to TAD, which had been sold to the customer for $137,000. The vehicle was in perfect condition, so it was put back into TAD’s inventory at TAD’s cost of $76,000. Prepare journal entries to record these transactions, assuming TAD uses a perpetual inventory system. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

The Journal entries are as follows:

(i)

Inventory A/c       Dr. $608,000

To Accounts Payable                   $608,000

(inventory purchased)

(ii)

Accounts Payable A/c     Dr. $152,000

To Inventory                                             $152,000

(inventory returned)

(iii)

Accounts receivables A/c      Dr. $685,000

To Sales revenue                                            $685,000

(sales made on account)

(iv)

Cost of Goods Sold A/c      Dr. $3,80,000

To Inventory                                                 $3,80,000

(inventory adjusted by cost of goods sold)

(v)

Sales return A/c        Dr. $137,000

To Accounts receivables                 $137,000

(returned by customer)

(vi)

Inventory A/c    Dr. $76,000

To cost of goods sold               $76,000

(cost of inventory returned back)

Answer 2

The journal entries that will be used in the recording of these transactions goes thus:

• Debit Inventory A/c   $608,000

• Credit Accounts Payable    $608,000
• (inventory purchased)

• Debit Accounts Payable A/c $152,000
• Credit Inventory        $152,000

• (Inventory returned)

• Debit Accounts receivables A/c $685,000

• Credit Sales revenue $685,000

• (For sales made on account)

• Debit Cost of Goods Sold A/c $380,000

• Credit Inventory $380,000

• (Inventory adjusted by cost of goods sold)

• Debit Sales return A/c $137,000

• Credit Accounts receivables  $137,000

• (For goods returned by customer)

• Debit Inventory A/c $76,000

• Credit Cost of goods sold  $76,000

• [Cost of inventory returned back]

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