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Journal Entries and Special Journals

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On January 1, 2002, Case Western Company had Accounts Receivable of $54,200 and allowance for Doubtful Accounts of $4,700. Case Western Company prepares financial statements annually. During the year the following selected transactions occurred.

Jan. 5 Sold $7,000 of merchandise to Garth Brooks Company, terms n/30.

Feb. 2. Accepted a $7,000, 4-month, 12% promissory note from Garth Brooks company
For balance due.

12. Sold $7,800 of merchandise to Gage Company and accepted Gage's $7,800,
2-month, 10% note for the balance due.

26. Sold $4,000 of merchandise to Mathias Co., terms n/10.

Apr. 5. Accepted a $4,000, 3-month, 8% note from Mathias Co. for balance due.

12. Collected Gage Company note in full.

June 2. Collected Garth Brooks Company note in full.

July 5. Mathias Co. dishonors its note of April 5. It is expected that Mathias will
Eventually pay the amount owed.

15. Sold $5,000 of merchandise to Tritt Co. and accepted Tritt's $5,000, 3-month,
12% note for the amount due.

Oct. 15. Tritt Co.'s note was dishonored. Tritt Co. is bankrupt, and there is no hope of
Future settlement.

Instructions: Journalize the transactions.

Page 2

Ehlert & Ramos is a wholesaler of small appliances and parts, Ehlert & Ramos is operated by two owners, Bill Ehlert and Denis Ramos. In addition, the company has one employee, a repair specialist, who is on a fixed salary. Revenues are earned through the sale of appliances to retailers (approximately 75% of total revenues), appliance parts to do-it-yourselfers (10%), and the repair of appliances brought to the store (15%). Appliance sales are made on both a credit and cash basis. Customers are billed on prenumbered sales invoices. Credit terms are always net/30 days. All parts sales and repair work are cash only.
Merchandise is purchased on account from the manufacturers of both the appliances and the parts. Practically all suppliers offer cash discounts for prompt payments, and it is company policy to take all discounts. Most cash payments are made by check. Checks are most frequently issued to suppliers, to trucking companies for freight on merchandise purchases, and to newspapers, radio, and TV stations for advertising. All advertising bills are paid as received. Bill and Denise each make a monthly drawing in cash for personal living expenses. The salaried repairman is paid twice monthly. Ehlert & Ramos currently has a manual accounting system.

Instructions:

(a) Identify the special journals that Ehlert & Ramos should have in its manual system.
List the column headings appropriate for each of the special journals.

(b) What control and subsidiary accounts should be included in Ehlert & Ramos's
manual system? Why?

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Solution Summary

The solution explains the journal entries for the transactions and the special journals that may be used by a firm.

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