Question

In: Accounting

Paul's Musical Instrument Company and Sally's Manufacturing Company engaged in the following transactions with each other during March 2020:

Paul's Musical Instrument Company and Sally's Manufacturing Company engaged in the following transactions with each other during March 2020:

Mar. 2Paul'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. 31The 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.


Solutions

Expert Solution

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)

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