Question

Record journal entries for the following transactions of Furniture Warehouse.

1. July 5: Purchased 30 couches at a cost of $150 each from a manufacturer. Credit terms are 2/15, n/30, invoice date July 5.

2. July 10: Furniture Warehouse returned 5 couches for a full refund.

3. July 15: Furniture Warehouse found 6 defective couches but kept the merchandise for an allowance of $500.

4. July 20: Furniture Warehouse paid their account in full with cash.

Answer 1

Journal entries-

July 5-

Supplies (150*30) Dr. $4500

Accounts payable. Cr. $4500

( To purchase of supplies recorded)

July 10-

Accounts payable. (5*150). Dr. $750

Supplies. Cr. $750

(To return outward recorded of 5 couches)

July 15-

Accounts payables. (150*6). Dr. $ 900

Allowances for defective supplies. Cr. $900

( To defective units debited to accounts of payables)

July 20-

Accounts payable Dr $ 2950

Discounts received(4500-750-900)*2% Cr. $57

Cash. Cr. $2793

( To payment to supplier made net of discount and defective units)

Since the payment has been made on 20th, i.e on the 15th day from the date of invoice ( excluding date of invoice)hence cash discount has been been adjusted.

The entry of defective units will be closed as follow

Allowances for defective units Dr.$900

Supplies . Cr. $900

(To accounts of defective units closed at year end)

If supplier does not accept the claim then this amount would have been transferred to cost of goods sold a s normal loss. And allowances entry would have been reversed to accounts payables.

Please don't get confuse, and comment me for explanation.

Thanks,

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