Question

On October 5, Larkspur Company buys merchandise on account from Crane Company. The selling price of the goods is $5,540, and the cost to Crane Company is $3,390. On October 8, Larkspur returns defective goods with a selling price of $670 and a scrap value of $360. Record the transactions of Larkspur Company, assuming a perpetual approach. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Answer 1

Answer:

Inventory            Dr.$5,540

Accounts Payable Cr.$5,540

(To record purchase of inventory from crane company credit basis)

No Entry for $3,390 as it is purchase cost of Crane and we are doing accounting entries for Larkspur Company not crane company.

Accounts Payable       Dr.$670

Inventory                      Cr.$670

(To record purchase return)

No Entry is required for scrap value i.e $360 as we are returning the goods to seller not selling the said goods in open market.

Explanation:

Perpetual inventory takes care of bookkeeping more often by recording sales and purchase transaction as and when transaction occurs.

No entry is required for cost of purchase of crane company as we are doing accounting for larkspur company not crane company.Further scrap value is irrelevant when inventory is to be returned to crane company. If we had to sale the same inventory rather then returning the goods to crane then only we had to account for scrap value.