Question

Problem 8-3

On October 9, 2020, Steven Company purchased $4,500 of product on account from Bryant Company on with credit terms of 2/15 n/30. The product cost Bryant Company $3,750. The freight terms were F.O.B. shipping point, the cost was $125 and the freight was paid in cash to ABC Trucking Company on Oct 12, 2020.

On October 15, Bryant Company purchased $2,000 of product from Mitchell Company, with credit terms of 3/10, n/60. The product cost Mitchell Company $1,200. The freight terms were F.O.B. destination. the cost was $75 and the freight was paid in cash to ABC Trucking Company on October 16.

On October 17, Steven Company paid for the purchase made on October 9.

On October 30, Bryant Company paid for the purchase made on October 15.

Prepare the journal entries for Steven, Bryant, and Mitchell Companies. Calculate the gross margin on Bryant’s sale to Steven Company and on Mitchell’s sale to Bryant Company.

Answer 1

1. JOURNAL FOR STEVEN COMPANY

DATE	ACCOUNT	DEBIT	CREDIT
OCT. 9	PURCHASE	4,500
	ACCOUNTS PAYABLE		4,500
OCT 12	FREIGHT CHARGES	125
	CASH		125
OCT 17	ACCOUNTS PAYABLE	4,500
	CASH		4,410
	DISCOUNT		90

2. JOURNAL FOR BRYANT COMPANY

DATE	ACCOUNT	DEBIT	CREDIT
OCT 9	ACCOUNTS RECEIVABLE	4,500
	SALES		4,500
	COST OF GOODS SOLD	3,750
	INVENTORY		3,750
OCT 15	PURCHASE	2,000
	ACCOUNTS PAYABLE		2,000
OCT 16	FREIGHT CHARGES	75
	CASH		75
OCT 17	CASH	4,410
	DISCOUNT	90
	ACCOUNTS RECEIVABLE		4,500
OCT 30	ACCOUNTS PAYABLE	2,000
	CASH		2,000

3. JOURNAL FOR MITCHELL COMPANY

DATE	ACCOUNT	DEBIT	CREDIT
OCT 15	ACCOUNTS RECEIVABLE	2,000
	SALES		2,000
	COST OF GOODS SOLD	1,200
	INVENTORY		1,200
OCT 30	CASH	2,000
	ACCOUNTS RECEIVABLE		2,000

4. GROSS MARGIN:

BRYANT'S SALE TO STEVEN COMPANY = NET SALES - COST OF GOODS SOLD

= 4,500 - 3,750

= 750.

MITCHELL'S SALE TO BRYANTS COMPANY = NET SALES - COST OF GOODS SOLD

= 2,000 - 1,200

= 800.