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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

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

  1. a. Purchased $90,000 of merchandise from Wright Co. on account, terms 2/10, n/30.
  2. b. b .Paid the amount owed on the invoice within the discount period.
  3. c. Discovered that $ 18,000 of the merchandise purchased in (a) was defective and returned items, receiving credit for $17,640 ($18,000 − ($18,000 × 2%)|.
  4. d. Purchased $10,000 of merchandise from Wright Co. on account, terms n/30.
  5. e. Received a refund from Wright Co. for return in (c) less the purchase in (d).

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   88,200  
  Accounts Payable     88,200 (1)
  (To record purchases of inventory on account after discount)      

Table (1)

Working Note:

Calculate the amount of accounts payable.

Purchases = $90,000

Discount Percentage = 2%

Amount of accounts payable} = PurchasesDiscount=Purchases(Purchases×2%)= $90,000 – ($90,000×2%)= $90,000$1,800=$88,200 (1)

Explanation:

  • Merchandise inventory is an asset and it is increased by $88,200. Therefore, debit inventory account with $88,200.
  • Accounts payable is a liability and it is increased by $88,200. Therefore, credit accounts payable account with $88,200.

b.

Record the journal entry for the due amount paid.

Journal Entry
Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

  Accounts Payable   88,200  
         Cash     88,200
  (To record paying cash on purchases after discounts and returns)      

Table (2)

Explanation:

  • Accounts payable is a liability and it is decreased by $88,200. Therefore, debit accounts payable account with $88,200.
  • Cash is an asset and it is decreased by $88,200. Therefore, credit cash account with $88,200.

c.

Record the journal entry for purchase returned for damaged goods.

Journal Entry
Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

  Accounts Receivable   17,640  
  Merchandise Inventory     17,640 (2)
  (To record the purchases return)      

Table (3)

Working Note:

Calculate the amount of merchandise inventory returned

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