Question

This information relates to Sherper Co.

1.		On April 5 purchased merchandise from Newport Company for $22,000, terms 2/10, n/30.
2.		On April 6 paid freight costs of $900 on merchandise purchased from Newport.
3		On April 7 purchased equipment on account for $26,000.
4.		On April 8 returned some of April 5 merchandise to Newport Company which cost $3,600.
5.		On April 15 paid the amount due to Newport Company in full.

Prepare the journal entries to record the transactions listed above on the books of Sherper Co. Sherper Co. uses a perpetual inventory system.

Assume that Sherper Co. paid the balance due to Newport Company on May 4 instead of April 15. Prepare the journal entry to record this payment.

Answer 1

In the books of S. Co

Journals

Date	Account titles and explanations	P.ref	Debit	Credit
April 5	Merchandise inventory		$22,000
	Accounts payable – N. Co			$22,000
	To record purchase in terms of 2/10, n/30
April 6	Freight expense		$900
	Cash			$900
	To record payment of freight for the purchase from N. Co
April 7	Accounts payable – N. Co		$3,600
	Merchandise inventory			$3,600
	To record return to N. Co
April 15	Accounts payable – N. Co		$18,400
	Discount received			$368
	Cash			$18,032
	To record payment for the balance amount

Note: 2/10, n/30 meaning = The S. Co has to pay the balance amount within 10 days to get 2% discount; otherwise the whole balance amount is due to be paid in 30 days.

Balance amount = Purchase amount – Return amount = $22,000 - $3,600 = $18,400

The balance is paid on April 15, which is on 10^th day from the date of purchase, April 5. Therefore, the discount is ($18,400 × 2% =) $368; the rest of the amount ($18,400 - $368 =) $18,032 should be paid in cash.

Payment on May 4: In such case there will be no discount, since the payment is not within 10 days.

Journals

Date	Account titles and explanations	P.ref	Debit	Credit
May 4	Accounts payable – N. Co		$18,400
	Cash			$18,400
	To record payment for the balance amount