Question

Pharoah Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. (a) On July 1, (1) Pharoah purchase $76,000 of inventory, terms 3/10, n/30, FOB shipping point. (2) Pharoah paid freight costs of $1,276. (b) On July 3, Pharoah returned damaged goods and received credit of $7,600. (c) On July 10, Pharoah paid for the goods.

Answer 1

Answer:

inventory    76,000 debit

   accounts payable   76,000 credit

---to record purchase on account--

freigth-in      1,276 debit

   cash                            1,276 credit

--to record payment of freigth--

accounts payable          7,600 debit

   returns and allowance    7,600 credit

--to record return of good to supplier--

accounts payable    68,400 debit

         purchase discount      2,052 credit

         cash                           66,348 credit

--to record payment within discount period--

Explanation:

As the company determinates inventory on a periodic basis we do not adjust right away, we use discount and return accounts instead of inventory

76,000 original invoice nominal

-7,600 discount

68,400 nominal after return subject to discount of 3%

-2,052 discount

66,348 cash outlay to settle with supplier