Answer:
Journal Entries:
Sep. 4:
Debit Inventory Account $6,600
Credit Accounts Payable (Morris Appliance Wholesale) $6,600
Sep. 4:
Debit Inventory (Freight-in) $600
Credit Cash Account $600
Oct 4:
Debit Accounts Payable (Morris Appliance Wholesale) $500
Credit Inventory Account $500
Oct 14:
Debit Accounts Payable (Morris Appliance Wholesale) $6,100
Credit Cash Discount $61
Credit Cash Account $6,039
Oct 16:
Debit Inventory Account $3,600
Credit Accounts Payable (Suarez Diamonds) $3,600
Oct 24:
Debit Accounts Payable $3,600
Credit Cash Discount $72
Credit Cash Account $3,528
Explanation:
a) The purchase of inventory of $6,600 increases the Inventory Account and Accounts Payable by the same amount. The trade terms were 1% cash discount if payment is made within 15 days, and the credit period allowed is 30 days. FOB shipping point, means Free on Board uptil the shipping point. From the shipping point, responsibility for the goods passes to the buyer.
b) The goods returned reduces the Inventory by $500 and the Accounts Payable by the same amount.
c) Morris Appliance is then owned $6,100 ($6,600 - $500). The actual amount paid is $6,039 after deducting cash discount of 1% since payment was made with 15 days as allowed by the terms.
d) Purchase of inventory from Suarez Diamonds increases Inventory and Accounts Payable by $3,600. The terms were 2% cash discount if payment is made within 10 days. Otherwise, the whole amount is payable. The credit period is End of the Month, EOM, with Free on Board destination, showing that responsibility for the goods remains with Suarez until they are delivered to the purchaser.
e) Payment was made within the 10 days discount window. Therefore, the amount due to Suarez is less 2% discount.
