Question

Purchase-Related Transactions

Journalize entries for the following related transactions of Lilly Heating & Air Company:

a. Purchased $25,000 of merchandise from Schell Co. on account, terms 2/10, n/30.

b. Paid the amount owed on the invoice within the discount period.

c. Discovered that $5,000 before purchases discount of the merchandise was defective and returned items, receiving credit.

d. Purchased $3,900 of merchandise from Schell Co. on account, terms n/30.

e. Received a check for the balance owed from the return in (c), after deducting for the purchase in (d).

Determining Gross Profit

During the current year, merchandise is sold for $609,000. The cost of the goods sold is $347,130.

a. What is the amount of the gross profit?
$

b. Compute the gross profit percentage (gross profit divided by sales). Round to the nearest whole number.
%

c. When will the income statement report net income?

Answer 1

Solution:

Journal Entries - Lilly Heating & Air Company
Event	Particulars	Debit	Credit
a	Merchandise inventory Dr	$25,000.00
	To Accounts Payable - Schell Co		$25,000.00
	(To record purchase of merchandise on account)
b	Accounts Payable - Schell Co Dr	$25,000.00
	To Cash		$24,500.00
	To Merchandise Inventory ($25,000*2%)		$500.00
	(To record payments to supplier within discount period)
c	Accounts Payable - Schell Co Dr	$4,900.00
	To Merchandise Inventory ($5,000*98%)		$4,900.00
	(To record merchandise returned)
d	Merchandise inventory Dr	$3,900.00
	To Accounts Payable - Schell Co		$3,900.00
	(To record purchase of merchandise on account)
e	Cash Dr ($4,900 - $3,900)	$1,000.00
	To Accounts Payable - Schell Co		$1,000.00
	(To record cash received from supplier)