Reference no: EM132795972

Stefan Company provided the following data for the current year, the first year of operations.

a. Purchase of merchandise at an invoice price of $4,750,000 excluding freight. Terms are 2/10, n/30.

b. Freight paid, $250,000. The freight is allocated to each purchase.

c. Cash payment on purchases, $3,717,000, of which $1,617,000 was paid within the discount period.

d. It is expected that all discounts on unpaid accounts payable will be lost.

e. On December 31, one fifth of the merchandise remains on hand.

Requirement:

Problem 1. Prepare journal entries to record the transactions using gross method and net method.

Problem 2. Compute the inventory and cost of sales under each method.