a. Purchased $71,500 of merchandise from Sitwell Co. on account, terms 1/10, n/30.
b. Paid the amount owed on the invoice within the discount period.
c. Discovered that $13,500 (before purchases discount of 1%) of the merchandise was defective and returned items, receiving credit.
d. Purchased $9,000 of merchandise from Sitwell 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).
Answer:
a.
Merchandise Inventory 71,500
Accounts Payable—Sitwell Co. 71,500
b.
Accounts Payable—Sitwell Co. 71,500
Cash 70,785
Merchandise Inventory 715
c.
Accounts Payable*—SitwellCo. 13,365
Merchandise Inventory 13,365
d.
Merchandise Inventory 9,000
Accounts Payable—SitwellCo. 9,000
e.
Cash 4,365
Accounts Payable—Sitwell Co. 4,365
* Note: The debit of $13,500 to Accounts Payable in entry (c) is the amount of cash refund due
from Sitwell Co. It is computed as the amount that was paid for the returned merchandise,
$13,500, less the purchase discount of $135 ($13,500 × 1%). The credit to Accounts Payable
of $9,000 in entry (d) reduces the debit balance in the account to $4,365, which is the amount
of the cash refund in entry (e). The alternative entries below yield the same final results.
c.
Accounts Receivable—Sitwell Co. 13,365
Merchandise Inventory 13,365
d.
Merchandise Inventory 9,000
Accounts Payable—Sitwell Co. 9,000
e.
Cash 4,365
Accounts Payable—Sitwell Co. 9,000
Accounts Receivable—Sitwell Co. 13,365