Question

Question 1 On Nov 30, Omni Company (Omni) purchases merchandise for resale from Diablo Limited (Diablo) with an invoice price of $9,700 and credit terms 3/10, n/45, FOB shipping point. The goods cost Rain $4,500. On Nov 30, Omni pays shipping charges of $330 on the purchase. On Dec 2, Omni returns unacceptable merchandise to Diablo that has an invoice price of $800. The retuned goods cost Diablo $350. On Dec 5, Omni discovers that $660 of goods are damaged but are still of some use and, therefore, keeps the units. Diablo sends Omni a credit memorandum for $400 to compensate for the damage. On Dec 8, Omni pays for the amount owed and Diablo receives it on the same day. (Both Omni and Diablo use a perpetual inventory system.) Required 1. Prepare journal entries that Omni Limited records for each transaction in November and December. 2. Prepare journal entries that Diablo Company records for each transaction in November and December. (No narration is required)

Answer 1

In the books of Omni Company:

Date	General Journal	Debit	Credit
		$	$
Nov 30	Merchandise Inventory ( 9,700 x 0.97 )	9,409
	Accounts Payable		9,409
Nov 30	Merchandise Inventory	330
	Cash		330
Dec 2	Accounts Payable ( 800 x 0.97 )	776
	Merchandise Inventory		776
Dec 5	Accounts Payable	388
	Merchandise Inventory		388
Dec 8	Accounts Payable	8,245
	Cash		8,245

In the books of Diablo Limited:

Date	General Journal	Debit	Credit
		$	$
Nov 30	Accounts Receivable	9,700
	Sales		9,700
Nov 30	Cost of Goods Sold	4,500
	Merchandise Inventory		4,500
Nov 30	No journal entry required	0	0
Dec 2	Sales Returns and Allowances	800
	Accounts Receivable		800
Dec 2	Merchandise Inventory	350
	Cost of Goods Sold		350
Dec 5	Sales Returns and Allowances	400
	Accounts Receivable		400
Dec 8	Cash	8,245
	Sales Discounts	255
	Accounts Receivable		8,500