Question

Purchase-Related Transactions

Milan Co., a women's clothing store, purchased $120,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. Milan Co. returned $16,000 of the merchandise, receiving a credit memorandum, and then paid the amount due within the discount period. Illustrate the effects on the accounts and financial statements of Milan Co. to record the following transactions. If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

a. The purchase

Statement of Cash Flows Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity No Effect + Inventory = Accounts Payable + No Effect Statement of Cash Flows Income Statement No effect No effect No effect No effect

b. The merchandise return

Statement of Cash Flows Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity No Effect + Inventory = Accounts Payable + No Effect Statement of Cash Flows Income Statement No effect No effect No effect No effect

Answer 1

Solution a:

a. The Purchase
Statement of Cash Flows	Balance Sheet								Income Statement
	Assets			=	Liabilities	+	Stockholders' Equity
	No Effect	+	Inventory	=	Accounts Payable	+		No Effect
			120000		120000
Statement of Cash Flows								Income Statement
No effect								No effect
								No effect
								No effect

Solution b:

b. The Merchandise return
Statement of Cash Flows	Balance Sheet								Income Statement
	Assets			=	Liabilities	+	Stockholders' Equity
	No Effect	+	Inventory	=	Accounts Payable	+		No Effect
			-16000		-16000
Statement of Cash Flows								Income Statement
No effect								No effect
								No effect
								No effect