Question

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions.May 11 Sydney accepts delivery of $32,000 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $21,440. Sydney pays $315 cash to Express Shipping for delivery charges on the merchandise.12 Sydney returns $1,100 of the $32,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $737.20 Sydney pays Troy for the amount owed. Troy receives the cash immediately.(Both Sydney and Troy use a perpetual inventory system and the gross method.)1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Merchandise Inventory Dr, $32,000

              To Accounts payable $32,000

(Being purchase of inventory is recorded)

Here we debited the merchandise inventory as it increased the assets and we credited the accounts payable as  it also increased the liabilities

2. Merchandise Inventory Dr, $315

           To Cash $315

(Being cash paid is recorded)

Here we debited the merchandise inventory as it increased the assets and we credited the cash as  it decreased the assets

3. Accounts payable Dr, $1,100

To Merchandise Inventory $1,100

(Being returned inventory is recorded)

Here we debited the accounts payable as it decreased the liabilities and we credited the merchandise Inventory as  it also decreased the assets

4. Accounts payable Dr, $30,900

            To Merchandise Inventory $927 ($32,000 - $1,100) × 3%

              To Cash $29,973 ($32,000 - $1,100) × 97%

(Being cash paid is recorded)

Here we debited the accounts payable as it decreased the liabilities and we credited the merchandise Inventory and cash as this both items are decreased in assets