Question

Stylon Co., a women’s clothing store, purchased $70,300 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30, using the net method under a perpetual inventory system. Stylon returned merchandise with an invoice amount of $9,000, receiving a credit memo.
Required:
Journalize Stylon’s entries to record:

a. The purchase
b. The merchandise return
c. The payment within the discount period of 10 days
d. The payment beyond the discount period of 10 days.

Answer 1

Answer:

a. Dr Inventory 68,894

Cr Accounts Payable 68,894

b.Dr Accounts Payable 8,820

Cr Inventory 8,820

c. Dr Accounts payable 60,074

Cr cash 60,074

d.

d1. Dr Inventory 1,201

Cr Accounts payable 1,201

d2. Dr Accounts payable 58,872

Cr Cash 58,872

Explanation:

Preparation of Journal entries

a. The purchase Journal entry

Dr Inventory 68,894

Cr Accounts Payable 68,894

[70,300(1-.02)]

[To record inventory net of discount if payment made within discount period amounting to 2% recorded]

b.The merchandise return Journal entry

Dr Accounts Payable 8,820

Cr Inventory 8,820

[9,000(1-.02)]

c. Journal entry to record the Payment within the discount period of 10 days

Dr Accounts payable 60,074

Cr cash 60,074

(68,894-8,820 = 60,074)

[To record payment to accounts payable due made within discount period]

d. Journal entry to record the payment that was made beyond the discount period of 10 days.

d1. Dr Inventory 1,201

Cr Accounts payable 1,201

[To record discount forfeited ]

d2. Dr Accounts payable 58,872

Cr Cash 58,872

Calculation for Net amount due for payment =68,894-8,820 = 60,074)

Gross amount = 60,074/(1-.02) = 58,872

Calculation for Discount forfeited

Discount forfeited= Gross amount *discount %

Discount forfeited= 60,074 *2%

Discount forfeited = 1,201