Question

Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 3/10, n/60 and an invoice price of $28,500. The merchandise had cost Mesa $19,437. Assume that both buyer and seller use a periodic inventory system and the gross method.

1. Prepare entries that the buyer should record for (a) the purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.

2. Prepare entries that the seller should record for (a) the sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

Answer 1

Solution 1:

Journal Entries - Buyer Books
S.No	Particulars	Debit	Credit
a	Purchases Dr	$28,500.00
	To Accounts Paayble		$28,500.00
	(To record Purchase)
b	Accounts Payable Dr	$28,500.00
	To Purchase Discount (28500*3%)		$855.00
	To Cash (28500*97%)		$27,645.00
	(To record Cash Payment within the discount period)
c	Accounts Payable Dr	$28,500.00
	To Cash		$28,500.00
	(To record Cash Payment after the discount period)

Solution 2:

Journal Entries - Seller Books
S.No	Particulars	Debit	Credit
a	Accounts Receivable Dr	$28,500.00
	To Sales Revenue		$28,500.00
	(To record sales)
b	Cash Dr	$27,645.00
	Sales Discount Dr (28500*3%)	$855.00
	To Accounts Receivable		$28,500.00
	(To record Cash collection within the discount period)
c	Cash Dr	$28,500.00
	To Accounts Receivable		$28,500.00
	(To record Cash collection after the discount period)