Chapter 4: 4-7DQ (page 205)
What is the difference between a sales discount and a purchases discount?
The difference between the sales and purchase discounts isbased on the person reporting the discount.
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Prepare journal entries for the following merchandising transactions of Dollar Store assuming it uses a perpetual inventory system and the gross method.
Nov. 1 Dollar Store purchases merchandise for \(1,500 on terms of 2∕5, n∕30, FOB shipping point, invoice dated November 1.
5 Dollar Store pays cash for the November 1 purchase.
7 Dollar Store discovers and returns \)200 of defective merchandise purchased on November 1, and paid for on November 5, for a cash refund.
10 Dollar Store pays \(90 cash for transportation costs for the November 1 purchase.
13 Dollar Store sells merchandise for \)1,600 with terms n∕30. The cost of the merchandise is \(800.
16 Merchandise is returned to the Dollar Store from the November 13 transaction. The returned items are priced at \)160 and cost $80; the items were not damaged and were returned to inventory.
Does the sender (maker) of a debit memorandum record a debit or a credit in the recipient’s account? What entry (debit or credit) does the recipient record?
Compute the amount to be paid for each of the four separate invoices assuming that all invoices are paid within the discount period.
Merchandise (gross) | Terms | Merchandise (gross) | Terms |
a. \(5,000 | 2∕10, n∕60 | c. \)75,000 | 1∕10, n∕30 |
b. \(20,000 | 1∕15, EOM | d. \)10,000 | 3∕15, n∕45 |
Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products. Prepare journal entries to record the following transactions for Allied assuming it uses a perpetual inventory system and the gross method. (Allied estimates returns using an adjusting entry at each year-end.)
May 3 Allied made its first and only purchase of inventory for the period on May 3 for 2,000 units at a price of \(10 cash per unit (for a total cost of \)20,000).
5 Allied sold 1,500 of the units in inventory for \(14 per unit (invoice total: \)21,000) to Macy Co. under credit terms 2∕10, n∕60. The goods cost Allied \(15,000.
7 Macy returns 125 units because they did not fit the customer’s needs (invoice amount: \)1,750). Allied restores the units, which cost \(1,250, to its inventory.
8 Macy discovers that 200 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for \)300 toward the original invoice amount to compensate for the damage.
15 Allied receives payment from Macy for the amount owed on the May 5 purchase; payment is net of returns, allowances, and any cash discount.
Buyers negotiate purchase contracts with suppliers. What type of shipping terms should a buyer attempt to negotiate to minimize freight-in costs?
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