Question

Facts (Problems 1-4)

On December 27, 2017, Mint Company placed an order to purchase merchandise on account from a seller, Lemon, Inc. Lemon’s listed catalog price for the merchandise is $13,000. Lemon’s historical cost for these items is $4,000. Mint has been a customer of Lemon’s for years and was able to negotiate these terms: (i) a 7% trade discount and (ii) payment terms of 2/10, n/30. The goods were shipped by Lemon FOB shipping point on December 30, 2017 and arrived at Mint’s facility on January 5, 2018. At the time of shipment, Lemon paid $700 in shipping costs. On January 6, Mint returned $2,000 worth of merchandise to Lemon, which had an original cost to Lemon of $615. Mint paid Lemon in full on January 7.

Show all of your work and calculations, and make sure you answer all parts of the question.

Required:

1. Prepare the seller’s (Lemon) entries for the sale, return, and collection of payment in the following format:

Date: MM/DD/YY

Dr. Account………...XX

     Cr. Account…………...XX

2. Prepare the buyer’s (Mint) entries for the purchase, return, and payment to Lemon in the following format:

            Date: MM/DD/YY

Dr. Account………...XX

     Cr. Account…………...XX

3. Assume all facts are the same, except the shipping terms are FOB destination. Prepare the seller’s (Lemon) entry for the sale in the following format:

Date: MM/DD/YY

Dr. Account………...XX

     Cr. Account…………...XX

4. Assume all facts are the same, except the shipping terms are FOB destination. Prepare the buyer’s (Mint) entry for the sale in the following format:

Date: MM/DD/YY

Dr. Account………...XX

     Cr. Account…………...XX

5. Explain the difference between a purchase discount and a trade discount.

Facts (Problems 6-7):

On June 29, 2019 Hulu Company placed an order to purchase 10,000 units of “This is Us” Merchandise from the seller The Big Three Company. Unit price for the merchandise was $4.50 while The Big Three company originally paid a cost of $3.00.

As The Big Three Company was trying to attract more customers and expand, it began its promotion of providing a discount of 15% to any customers that order 10,000 units or more with an additional discount of 2/10, n/30. Both companies use the gross method for purchases and discounts. On July 2, 2019 The Big Three Company shipped the merchandise on F.O.B. Shipping Point, and the merchandise arrived on July 10th. Shipping cost of $3,000 was pre-paid by The Big Three Company. On July 11th, Hulu paid off the balance after returning 500 units.

6. Choose either Hulu or The Big Three and prepare all the journal entries related to this transaction from the chosen company’s perspective in the following format:

Date: MM/DD/YY

Dr. Account………...XX

     Cr. Account…………...XX

7. Using the same facts as in problem #6, prepare a single-step income statement.

Answer 1