Question
Copperfield Hardware is a newly formed corporation that uses a perpetual inventory system. The following transactions occurred during March 2026.
| Date | Transaction |
|---|
| March 1 | Issued common stock to investors for $50,000 cash. |
| March 4 | Purchased merchandise inventory on account, $18,000. |
| March 9 | Sold merchandise to a customer for $12,000 cash. The merchandise had cost $7,500. |
| March 15 | Paid the $18,000 owed to the supplier from the March 4 purchase. |
Required: Prepare the journal entries for each transaction. Because Copperfield uses a perpetual system, record the March 9 sale with two entries — one for the revenue and one for the cost of the merchandise sold. Use Merchandise Inventory, Cost of Goods Sold, Sales Revenue, and Common Stock.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories
A merchandising business buys finished goods and resells them, so its income statement leads with net sales, cost of sales and gross profit. Establish which inventory system is in use before recording anything, because the entries for the same transaction differ entirely between perpetual and periodic.
Common mistakes
- Mixing perpetual and periodic mechanics within a single set of entries.
- Omitting freight inwards from inventory cost, or netting freight outwards against sales rather than treating it as a distribution expense.
- Reporting sales gross when returns and allowances should reduce it.
Further readingIAS 2: costing methods and NRV