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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Purchase-related transactions

Warwick’s Co.. a women’s clothing store, purchased $75,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. Warwick’s returned $9,000 of the merchandise, receiving a credit memo, and then paid the amount due within the discount period. Journalize Warwick’s entries to record (a) the purchase, (b) the merchandise return, and (c) the payment.

To determine

Purchases is an activity of acquiring the merchandise inventory of a business.

To Record: The purchase of merchandise inventory on account under the terms of 2/10, n/30.

Explanation

(a)

Record the purchase of merchandise inventory on account.

Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

  Merchandise Inventory   73,500  
  Accounts Payable     73,500 (1)
  (To record purchases of inventory on account after discount)      

Table (1)

Working Note:

Calculate the amount of accounts payable.

Purchases = $75,000

Discount Percentage = 2%

Amount of accounts payable} = PurchasesDiscount=Purchases(Purchases×2%)= $75,000 – ($75,000×2%)= $75,000$1,500=$73,500 (1)

Explanation:

  • Merchandise inventory is an asset and it is increased by $73,500. Therefore, debit inventory account with $73,500.
  • Accounts payable is a liability and it is increased by $73,500. Therefore, credit accounts payable account with $73,500.

(b)

Describe the journal entry for purchase returned.

Journal Entry
Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

  Accounts Payable   8,820  
  Merchandise Inventory     8,820 (2)
  (To record the purchases return)      

Table (2)

Working Note:

Calculate the amount of accounts payable

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