Acct 3300 Chapter 5

Santa Fe Company purchased Merchandise for resale from Mesa Company with an invoice price of $24000 and credit terms of 3/10, n/60. The merchandise had cost Mesa 16,000. Sa Fe paid within the discount period. Assume that both seller and buyer use a perpetual system. 1. Prepare entries that the seller should record for (a) the purchase and (b) the cash payment. 2. Prepare entries that the seller should record for (a) the sale and (b) the cash collection.

1(a) Merchandise Inventory 24000 Accounts Payable 24000 1(b) Accounts Payable 24000 Merchandise Inventory 720 Cash 23280 2(a) Accounts Payable 24000 Merchandise Inventory 24000 2(b) Cost of Goods 16000 Merchandise Inventory 16000

Business decision makers desire information on sales returns and allowances. (1) Explain why a company's manager wants the accounting system to record customer's returns of unsatisfactory goods in the Sales Returns and Allowances account instead of the Sales account. (2) Explain whether this information would be useful for external decision makers.

1) It keeps an accurate count of inventory and also tracks damaged goods 2) Yes, it reveals profit margins as well as reputation on providing goods, products and services.

On May 11, Sydney Co. accepts delivery of $40,000 of merchandise it purchases for resale from Troy Corporation. With the merchandise is an invoice dated May 11, with terms of 3/10, n/90, FOB shipping point. The goods cost Troy $30,000. When the goods are delivered, Sydney pays $345 to Express Shipping for delivery charges on the merchandise. On May 12, Sydney returns $1400 of goods to Troy, who receives them one day later and restores them to inventory. The returned goods had cost Troy $800. On may 20, Sydney mails a check to Troy Corporation for the amount owed. Troy receives it the following day. (Both Sydney and Troy use a perpetual inventory system.) 1. Prepare journal entries that Sydney Co. records for these transactions. 2. Prepare journal entries that Troy Corporation records for these transactions.

1. Sydney - Buyer 11 Accounts Payable 40000 Merchandise Inventory 40000 11 Merchandise Inventory 345 Cash 345 12 Merchandise Inventory 1400 Accounts Payable 1400 20 Accounts Payable 38600 Merchandise Inventory 1158 Cash 37442 2. Troy - Seller 11 Accounts Receivables 40000 Sales 4000 Cost of Goods Sold 30000 Merchandise Inventory 30000 13 Sales Returns and Allowances 1400 Accounts Receivables 1400 Cost of Good Sold 800 Merchandise Inventory 800 21 Cash 37442 Sales Discount 1158 Accounts Receivables 38600

Prepare journal entries to record the following transactions for a retail store. Assume a perpetual inventory system. April 2 Purchased merchandise from Lyon Company under the following terms: $4600 price, invoice dated April 2, credit terms of 2/15, n/60, FOB Shipping point. 3 Paid $300 for shipping charges on April 2 purchase. 4 Returned to Lyon Company unacceptable merchandise that had an invoice price of $600. 17 Sent a check to Lyon Company for the April 2 purchase, net of the discount price and the returned merchandise. 18 Purchased merchandise from Frist Corp, under the following terms: $8500 price, invoice dated April18, credit terms 2/10, n/30, FOB shipping destination. 21 After negotiations, received from Frist a $1,100 allowance on the April 18 purchase. 28 Sent a check to Frist paying for the April 18 purchase, net of the discount and allowance.

2 Merchandise Inventory 4600 Accounts Payable 4600 3 Merchandise Inventory 300 Cash 300 4 Accounts Payable 600 Merchandise Inventory 600 17 Accounts Payable 4000 Merchandise Inventory 80 Cash 3920 18 Merchandise Inventory 8500 Accounts Payable 8500 21 Sales Returns and Allowances 1100 Accounts Payable 1100 28 Accounts Payable 7400 Merchandise Inventory 148 Cash 7252

Allied Parts was organized on May 1, 2013 and made its first purchase of merchandise on May 3. The purchase was for 2,000 units at a price of $10 per unit. On May 5, Allied Parts sold 1500 of the units for $14 per unit to Baker Co. Terms of the sale were 2/10, n/60. Prepare entries for Allied Parts to record the May 5 sale and each of the following separate transactions (a) through (c) using a perpetual system. (a) On May 7, Baker returns 200 units because they did not fit the customers needs. Allied Parts restores the units to its inventory. (b) On May 8, Baker discovers that 300 units are damaged but are still of some use and, therefore, keeps the units. Allied Parts sends Baker a credit memorandum for $600 to compensate for the damage. (c) On May 15, Baker discovers that 100 units are the wrong color. Baker keeps 60 of the units because Allied Parts sends a $120 credit memorandum to compensate. Baker returns the remaining 40 units to Allied Parts. Allied Parts restores the 40 returned units to its inventory.

Allied - Seller 5 Accounts Receivables 21000 Sales 21000 Cost of Goods Sold 15000 Merchandise Inventory 15000 (a) 7 Sales Returns and Allowances 2800 Accounts Receivables 2800 Merchandise Inventory 2000 Cost of Goods Sold 2000 (b) 8 Sales Returns and Allowances 600 Accounts Receivables 600 (c) 15 Sales Returns and Allowances 680 Accounts Receivables 680 Merchandise Inventory 400 Cost of Goods Sold 400

Refer to Exercise 5-4 and prepare the appropriate journal entries for Baker Co. to record May 5 purchase and each of the three separate transactions (a) through (c). Baker is a retailer that uses a perpetual inventory system and purchases these units for resale.

Baker - Buyer 5 Merchandise Inventory 21000 Accounts Payable 21000 7 Accounts Payable 2800 Merchandise Inventory 2800 8 Accounts Payable 600 Merchandise Inventory 600 15 Accounts Payable 680 Merchandise Inventory 680