Question

Presented below are transactions related to Tamarisk, Inc.

May 10		Purchased goods billed at $15,600 subject to cash discount terms of 2/10, n/60.
11		Purchased goods billed at $14,400 subject to terms of 1/15, n/30.
19		Paid invoice of May 10.
24		Purchased goods billed at $14,400 subject to cash discount terms of 2/10, n/30.

1. Prepare general journal entries for the transactions above under the assumption that purchases are to be recorded at net amounts after cash discounts and that discounts lost are to be treated as financial expense.

2.Assuming no purchase or payment transactions other than those given above, prepare the adjusting entry required on May 31 if financial statements are to be prepared as of that date.

Answer 1

ANSWER

1)

Journal Entries assuming transactions recorded on NET BASIS

Date	General Journal	Dr	Cr	Working (if any)
May 10	Purchases	$15,288		15,600– 2%
	Accounts payable		$15,288
May 11	Purchases	$14,256		$14,400– 1%
	Accounts payable		$14,256
May 19	Accounts payable	$15,288		Amount paid
	Cash		$15,288
May 24	Purchases	$14,112		$14,400– 2%
	Accounts payable		$14,112

2)

Adjustment entries for Discount Lost

Date	General Journal	Dr	Cr	Working (if any)
May 31	Discount lost	$144		$14,400x 1% = $144, discount lost as payment not yet made after 15 days
	Accounts payable		$144

No Entry is required for adjustment of “Discount Lost” on May 24 purchases, because discount will be received if payment is made within 10 days, and 10 days have not yet passed till 31^st may

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