Principles of Accounting Questions

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Version 4 Question 5 (10 marks) The following are merchandising transactions of Stone Company, which applies the perpetual inventory system. Aug 1 Purchased merchandise from Abilene Company for RO. 6,000 under credit terms of 1/10, n/30, FOB destination. Aug 4 At Abilene’s request, Stone paid RO. 100 cash for freight charges on the August 1 purchase, reducing the amount owed to Abilene. Aug 5 Sold merchandise to Lux Corp. for RO. 4,200 under credit terms of 2/10, n/60, FOB destination. The merchandise had cost RO. 3,000. Aug 8 Purchased merchandise from Welch Corporation for RO. 5,300 under credit terms of 1/10, n/45, FOB shipping point. The invoice showed that at Stone’s request, Welch paid the RO. 240 shipping charges and added that amount to the bill. (Hint: Discounts are not applied to freight and shipping charges). Aug 9 Paid RO. 120 cash for shipping charges related to the August 5 sale to Lux Corp. Aug 10 Lux returned merchandise from the August 5 sale that had cost Stone RO. 500 and been sold for RO. 700. The merchandise was restored to inventory. Aug 12 After negotiations with Welch Corporation concerning problems with the merchandise purchased on August 8, Stone received a credit memorandum from Welch granting a price reduction of RO. 800. Aug 18 Paid the amount due Welch Corporation for the August 8 purchase. Instructions: a) Prepare Journal Entries to record the above transactions. (7 Marks) b) What is the process for posting to a subsidiary ledger and its controlling account? (number of words required must not be less than 100 words). (3 Marks) Page 1 of 2 Question 6 (10 marks) In July, the following selected transactions were completed. All purchases and sales were on account. At the beginning of July, the ledger of the company showed Cash RO. 2,500, purchase RO. 1,700, Account Receivable RO. 2,000, and Accounts Payable RO. 2,200. The following transactions were completed during July. Date July 1 2 3 5 8 13 15 16 18 21 22 24 26 28 30 Transactions Purchased merchandise from XYZ Company RO. 7,600. Received freight bill from Pegasus Shipping on XYZ purchase RO. 400. Made sales to Echo Company RO. 1,300 and to Pitas Bros. RO. 2,000. Purchased merchandise from Horizon Company RO. 3,200. Received credit on merchandise returned to Horizon Company RO. 300. Purchased store supplies from Bowe Supply RO. 910. Purchased merchandise from XYZ Company RO. 3,600 and from Goran Company RO. 3,300. Made sales to Fiber Company RO. 3,450 and to Pitas Bros. RO. 1,570. Received bill for advertising from Wei Advertisements RO. 600. Made sales to Echo Company RO. 310 and to Musky Company RO. 2,800. Granted allowance to Echo Company for merchandise damaged in shipment RO. 65. Purchased merchandise from Horizon Company RO. 3,000. Purchased equipment from Bowe Supply RO. 900. Received freight bill from Pegasus Shipping on Horizon purchase of July 24, RO. 380. Made sales to Fiber Company RO. 5,600. Instructions: a. Post to both the general and subsidiary ledger accounts. b. Discuss three functions of a Trial Balance. ( 7 marks) ( 3 marks) Page 2 of 2
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Running head: PRINCIPLES OF ACCOUNTING

Principles of Accounting
Institution Affiliation
Date

1

PRINCIPLES OF ACCOUNTING

Question 5 b. Process of Posting to a Subsidiary Account and Its Controlling
Account
A subsidiary account is an account used to keep a trail on accounts payable and account
receivable. When a credit sale is made to a customer, an account with the customer's initials is
posted in the subsidiary account. All subsequent credit sales made by other customers are
displayed. The sum of the credit sales from the different customer accounts are later posted into
the control account (Franklin et al., 2019). The amount in the control account is used to check the
amount in the account receivables or account payables in the general ledger. Control accounts
are also used in the preparation of the final financial statements. The control accounts are also
used for other considerations such as plant and equipment.

Question 6 b. Discuss Three Functions of a Trial Balance
Trial balance serves a few purposes in accounting. The primary purpose of the
preparation of the trial balance is to help in the identification of any errors. Through a trial
balance, arithmetic accuracy is gauged since each transaction has to match the amount it holds on
both sides of the ledger (Weetman, 2019). The trial balance is also used in the preparation of
final financial statements. The balances of all ledger accounts are posted in the trial balance,
which is later used to prep...