Question

arns Company purchased merchandise on account from Bailey Office Suppliers for $174,000, with terms of 2/10, n/30. During the discount period, Karns returned some merchandise and paid $156,800 as payment in full. Karns uses a perpetual inventory system. Prepare the journal entries that Karns Company made to record: (1) the purchase of merchandise. (2) the return of merchandise. (3) the payment on account.

Answer 1

Answer:

(1) the purchase of merchandise.

Merchandise $174,000 (debit)

Accounts Payable : Bailey Office Suppliers $174,000 (credit)

(2) the return of merchandise.

Accounts Payable : Bailey Office Suppliers $14,000 (debit)

Merchandise $14,000 (credit)

(3) the payment on account.

Accounts Payable : Bailey Office Suppliers $160,000 (debit)

Discount received $3,200 (credit)

Cash $156,800 (credit)

Explanation:

Perpetual inventory system, keeps record of the cost of sales and inventory valuation after every sale.

On Purchase : Increase the assets of merchandise and increase the Liability.

On Return : Decrease the Assets of Merchandise and Decrease the Liability.

On Payment : Decrease the Assets of of Cash and decrease the Liability.