In: Accounting
Paul's Musical Instrument Company and Sally's Manufacturing Company engaged in the following transactions with each other during March 2020:
Mar. 2 | Paul's Company purchased merchandise on account with a list price of $76,000 from Sally's Company. The terms were 3/EOM, net 60, FOB shipping point. Trade discounts of 13%, 10%, and 6% were granted by Sally. (Please note that trade discounts should NOT be recorded in the books of either the buyer nor the seller. Please refer to page 229 of the textbook if you don't know how to treat trade discounts.) |
Mar. 6 | The buyer paid the freight bill on the purchase of March 2, $1,460. |
Mar. 9 | The buyer returned damaged merchandise with an invoice price of $3,800 to the seller, and received full credit. |
Mar. 31 | The buyer paid the seller the amount due on the purchase. |
Both the buyer and the seller use the periodic inventory method.
Required: Prepare the journal entries for the buyer and the seller.
Journal entries for the buyer:
Date | General Journal | Debit | Credit |
Mar. 2 | Purchases | $ 76,000 | |
Account Payable | $ 76,000 | ||
(To record Inventory purchased on account) | |||
Mar. 6 | Freight-In Expenses | $ 1,460 | |
Cash | $ 1,460 | ||
( To record freight expense) | |||
Mar. 9 | Account Payable | $ 3,800 | |
Purchases Returns | $ 3,800 | ||
( To record purchase returns) | |||
Mar. 31 | Account Payable [76000-3800] | $ 72,200 | |
Purchase Discount [72200*3%] | $ 2,166 | ||
Cash | $ 70,034 | ||
( To record payment of accounts payable) |
Journal entries for the Seller:
Date | General Journal | Debit | Credit |
Mar. 2 | Account Receivable | $ 76,000 | |
Sales Revenue | $ 76,000 | ||
( To record sales on account) | |||
Mar. 9 | Sales Returns and Allowance | $ 3,800 | |
Accounts Receivable | $ 3,800 | ||
( To record sales returns) | |||
Mar. 31 | Cash [76000-3800] | $ 70,034 | |
Sales Discount [72200*3%] | $ 2,166 | ||
Accounts Receivables | $ 72,200 | ||
( To record collection of accounts receivables) |