Question

Journalize entries for the following related transactions of Lilly Heating & Air Company using the net method under a perpetual inventory system. (If an amount box does not require an entry, leave it blank.) a. Purchased $34,000 of merchandise from Schell Co. on account, terms 2/10, n/30. b. Paid the amount owed on the invoice. c. Discovered that merchandise with an invoice amount of $6,800 purchased in (a) was defective and returned items, receiving credit. d. Purchased $5,100 of merchandise from Schell Co. on account, terms n/30. e. Received a refund from Schell Co. for return in (c) less the purchase in (d).

Answer 1

Answer:

Part a

Merchandise $34,000 (debit)

Trade Payable $34,000 (credit)

Part b

Trade Payable $34,000 (debit)

Cash $34,000 (credit)

Part c

Refund Receivable $ 6,800 (debit)

Merchandise $6,800 (credit)

Part d

Merchandise $5,100 (debit)

Trade Payable $5,100 (credit)

Part e

Cash $1,700 (debit)

Refund Receivable $1,700 (credit)

Explanation:

Part a

Merchandise $34,000 (debit)

Trade Payable $34,000 (credit)

Recognise an Asset - Merchandise and a Liability - Trade Payable

Part b

Trade Payable $34,000 (debit)

Cash $34,000 (credit)

De-recognise the Liability - Trade Payable and De-recognise asset - Cash

Part c

Refund Receivable $ 6,800 (debit)

Merchandise $6,800 (credit)

Recognise an asset - Refund Receivable and de-recognise asset - Merchandise

Part d

Merchandise $5,100 (debit)

Trade Payable $5,100 (credit)

Recognise asset - Merchandise and recognise liability - Trade Payable

Part e

Cash $1,700 (debit)

Refund Receivable$1,700 (credit)

Recognise asset - Cash and de-recognise the asset - Refund Receivable