Question

1. The following events affected Austin’s Auto Shop during 2019.

1	Purchased merchandise on account that costs $25,000. The terms of purchases are 2/11, n/45.
2	The goods in Event 1 were purchased FOB shipping point with freight cost of $800 cash
3	Returned $2,000 of damaged merchandise (Event 1) to the supplier
4	Sold merchandise that costs $12,000 for $21,500 cash. The terms of sale was  2/11, n/45.
5	Delivered merchandise to customers in Event 4 under terms FOB destination with freight costs amounting to $500 cash
6	Paid the amount due on its account payable (Event 1) within the discount period.
7	The customer paid the amount due on (Event 4) during the discount period.

Required: [7 Marks]

1. Prepare journal entries to record the events [7 Marks]

Answer 1

Journal entries in the books of Austin's Auto:

1	Purchases Account	Dr	$     25,000
	To Accounts Payable account	Cr		$        25,000
	(Being merchandise purchased on 2/11, n/45 terms)
2	Freight Inwards expense account	Dr	$           800
	To Cash account	Cr		$              800
	(Being freight expense incurred on merchandise purchased on FOB shipping point terms, to be borne by the purchaser)
3	Accounts payable account	Dr	$       2,000
	To Purchases returns account	Cr		$           2,000
	(Being damaged goods returned to the supplier)
4	Accounts receivable account	Dr	$     21,500
	To Sales account	Cr		$        21,500
	(Being merchandise sold on 2/11, n/45 terms)
5	Freight outwards expense account	Dr	$           500
	To Cash account	Cr		$              500
	(Being freight expense incurred on merchandise sold on FOB destination point terms, to be borne by the seller)
6	Accounts payable	Dr	$     23,000
	To Discount received account	Cr		$              460
	To Cash account	Cr		$        22,540
	(Being accounts payable on net purchases of (25000 purchase - 2000 returns) = 23000 paid and discount eligible for 2% on 23000 which is $460)
7	Cash account	Dr	$     21,070
	Discount paid account	Dr	$           430
	To Accounts receivable account	Cr		$        21,500
	(Being accounts receivable on sales of 21500 and discount eligible for 2% on 21500 which is $430, net payment received in cash of 21070)