Question

5.Thorsten Company, a trendy clothing retailer, had the following transactions in March:

March 2 Purchased merchandise from Sabine Company under the following terms: $1,800 invoice price, 2/15, n/60, FOB factory. (The cost of the merchandise to Sabine Company was $990.)

March 3 Paid UBS Shipping $125 for shipping charges on the purchase of March 2.

March 4 Returned to Sabine Company unacceptable merchandise that had an invoice price of $300 (and a cost to Sabine of $165). Sabine returned the merchandise to inventory.

March 17 Sent a cheque to Sabine Company for the March 2 purchase, net of the discount and the returned merchandise.

Required Assuming both Thorsten and Sabine use a perpetual inventory system:

a. Present the journal entries Thorsten Company should record for these transactions.

b. Present the journal entries Sabine Company should record for these transactions.

Answer 1

Requirement a: [In the books of Thorsten (buyer)]

Date	Account title and explanation	Debit	Credit
March 2	Inventory	$1,800
	Accounts payable		$1,800
	[To record purchase of merchandise on account]
March 3	Inventory	$125
	Cash		$125
	[To record payment of freight]
March 4	Accounts payable	$300
	Inventory		$300
	[To record purchase returns]
March 17	Accounts payable [1800-300]	$1,500
	Inventory [1,500 x 2%]		$30
	Cash		$1,470
	[To record payment made to suppliers]

Requirement b [In the books of Sabine (seller)]

Date	Account title and explanation	Debit	Credit
March 2	Accounts receivable	$1,800
	Sales revenue		$1,800
	[To record credit sales
	Cost of goods sold	$990
	Inventory		$990
	[To record cost of goods sold]
March 4	Sales returns and allowance	$300
	Accounts receivable		$300
	[To record sales returns]
	Inventory	$165
	Cost of goods sold		$165
	[To record cost of sales returns]
March 17	Cash	$1,470
	Sales discount [1500 x 2%]	$30
	Accounts receivable [1800-300]		$1,500
	[To record collections from customers]