Question

Exercise 4-16A Recording sales, purchases, and discounts: buyer and seller- periodic LO P5

Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 2/10, n/60 and an invoice price of $27,700. The merchandise had cost Mesa $18,891. 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

1) Journal entry : Buyer

No	General journal	Debit	Credit
a	Purchase	27700
	Account payable		27700
	(To record purchase)
b	Account payable	27700
	Cash (27700*98%)		27146
	Purchase discount		554
	(To record amount paid)
c	Account payable	27700
	Cash		27700
	(To record amount paid)

Journal entries : Seller

No	General journal	Debit	Credit
a	Account receivable	27700
	Sales revenue		27700
	(To record sales)
b	Cash (27700*98%)	27146
	Sales discount	554
	Account receivable		27700
	(To record collection)
c	Cash	27700
	Account receivable		27700
	(To record collection)