Reference no: EM132534996
Sale returns and allowance and cash discounts:
- Kitco Inc. is in the wholesale business that buys linseed oil which is used in the paint manufacturing business to add gloss to the paint. The company buys linseed oil from many crushing plants throughout the United States and stores it in a tank farm with a total capacity of 1.5 million gallons at their headquarters. It sells linseed oil to paint manufacturers and also to big-box hardware stores. Kitco Inc. offers a cash discount off of its list price of $8.50 per gallon with terms of 2/10 net 30. In addition to the cash discount the company also offers a $.25 quantity discount per gallon on orders for 500,000 or more. At the beginning of October, the company had in storage 600,000 gallons of linseed oil in its storage tanks with an average cost of five dollars per gallon. The company uses the Periodic (Physical) inventory systems and counts the inventory at the end of each month to prepare its internal financial statements.
During the month of October and November, the company had the following transactions:
10/3. Kitco Inc. sold 475,000 gallons to the paint manufacturing company with a sales price with after a quantity discount of $7.75 per gallon with terms of 2/10n30 and sent an invoice to the customer.
10/5. Purchased 700,000 gallons of linseed oil with terms of 3/10n30 at a cost of $3,500,000 and received an invoice from the seller.
10/8. Kitco Inc. had 10,000 gallons of linseed oil returned to it from the sale made on 10/3 for not meeting the specifications. The company issued a credit memo for the amount owed. The linseed oil was scraped and not put back into inventory.
10/11. Purchased 300,000 gallons of linseed oil with terms of 3/10n30 at a cost of $1,500,000 and received an invoice from the seller.
10/12 Received a check for the sale made on 10/3 with the cash discount taken.
10/15. Return 50,000 gallons of tainted linseed oil to the crushing plant it purchased the linseed oil from for $5.00 a gallon on 10/5. Received a credit memo from the company the linseed oil was purchased from on the same date.
10/20. Paid the invoice received on 10/11 and took the discount.
10/21. Kitco Inc. sold 500,000 gallons to paint manufacturing company. Kitco Inc. gave the paint company a quantity discount of $.25 (cent) per gallon off the list price per gallon with terms of 2/10n30 and sent an invoice to the customer.
10/22. Sold 20,000 gallons of linseed oil to a big-box chain hardware store at the list price per gallon with terms of 2/10n30 and sent an invoice to the customer.
10/31. Took a reading of the storage tank farms linseed oil tanks and found that 3,000 gallons of linseed oil had been inadvertently spilled while filling paint cans.
10/31. Paid the invoice from the 10/5 purchase in full payment less the returned line seed oil.
10/31 Received a check for the sale made on 10/21 in full payment.
10/31 Received a check for the sale made on 10/22 less the discount.
Required:
Question 1: Assume Kitco Inc. uses the gross method to record all sales and purchase transactions. Make all of the required journal entries to record the sales and purchase transactions above including sales and purchase returns.