Question

Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 3∕10, n∕60 and an invoice price of \(24,000. The merchandise had cost Mesa \)16,000. Assume that both buyer and seller use a perpetual inventory system and the gross method.

1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.

2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

Short answer

Answer

1. Both debit and credit sides of the journal amount to$72,000 each.
2. Both debit and credit sides of the journal amount to$88,000 each.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Perpetual Inventory System

The system used to account for all the inventory transactions in which the business entity updates the balance in the inventory account after each sale and purchase transaction is known as the perpetual inventory system.

Journal entries for the purchaser

Date	Accounts and Explanation	Debit $	Credit $
(a)	Merchandise inventory	$24,000
	Account payable		$24,000
(b)	Accounts payable	24,000
	Discount received		720
	Cash		23,280
(c)	Accounts payable	24,000
	Cash		24,000
		$72,000	$72,000

Journal entries for the seller

Date	Accounts and Explanation	Debit $	Credit $
(a)	Accounts receivable	$24,000
	Sales revenue		$24,000
	Cost of goods sold	16,000
	Merchandise inventory		16,000
(b)	Cash	23,280
	Discount allowed	720
	Accounts receivable		24,000
(c)	Cash	24,000
	Accounts receivable		24,000
		$88,000	$88,000