Question: Grindstone Paving has the following information for one item they sell. At the beginning of July, they had 50 units with a cost of $25 each. Grindstone uses the perpetual inventory system and uses FIFO for inventory valuation. Grindstone charges 5% sales tax on all sales.
Prepare the following journal entries. Use the table below the transactions to calculate inventory valuation.
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Date
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Transaction
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Jul 8
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Purchased 500 units at $26 each on account, terms 2/10, net 30.
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Jul 10
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A portion of the inventory from the above purchase was defective. Grindstone returned 100 units to the supplier.
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Jul 12
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Sold 300 units to SouthShore on account at $60 per unit plus tax, terms 2/10, net 30.
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Jul 14
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The customer from Jul 12 returned 30 units that were not needed. Process the return, including sales tax.
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Jul 18
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The customer from Jul 12 paid their amount owing and claimed their discount. Note the discount is not taken on the sales tax amount.
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Jul 22
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Purchased 350 units on account at $27 per unit with terms of 3/10, net 30.
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Jul 23
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Sold 200 units for $60 each plus tax. Received cash.
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Jul 25
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Took advantage of discount offered and paid up amount owing from the Jul 22 purchase.
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Jul 31
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Remitted the sales tax owing to the government.
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Jul 31
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Grindstone provides warranties on the products they sell. They estimate the warranty to be $2 for each item sold (less any returns).
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