Question

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. May 11 Sydney accepts delivery of $40,000 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, TOB shipping point. The goods cost Troy $30,000. Sydney pays $345 cash to Express Shipping for delivery charges on the merchandise. 12 Sydney returns $1,400 of the $40,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $1,050. 20 Sydney pays Troy for the amount owed. Troy receives the cash immediately. retharges on the point. The Storchandise (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. 2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare journal entries that Sydney Retailing (buyer) records for these three transactions. View transaction list Journal entry worksheet

Answer 1

The terms 3/10, n/90 means the following: ► 3/10 means: '3' indicates the discount percentage and '10' indicates the number of days from the date of invoice (May 1l) within which buyer or Customer has to pay the amount owed to the seller or supplier to avail (or to qualify for) the discount of 3% ► N/90 states that if the buyer or customer is not able to pay the invoice amount within 10 days to avail 3% discount, then the entire invoice amount is due within 90 days from the date of invoice. Since Sydney retailers paid the amount it owe to Troy wholesalers within the discount period (Before 10 days from May 11), Sydney retails is eligible for the discount of 3%.

1. Journal Entries that Sydney Retailing records for these transactions
No.	Date	General Journal	Debit	Credit
1	May 11	Merchandise Inventory	$40,000
		Accounts Payable		$40,000
		(To record credit purchases)
2	May 11	Merchandise Inventory	$345
		Cash		$345
		(To record the shipping expenses)
3	May 12	Accounts payable	$1,400
		Merchandise Inventory		$1,400
		(To record the purchase return)
4	May 20	Accounts payable                       [Purchases - Purchase returns = $40,000 - $1,400]	$38,600
		Merchandise Inventory     [Discount = Amount payable x 3% = (Purchases - Purchase returns = ($40,000 - $1,400) x 3%]		$1,158
		Cash                                 [Purchases - Purchase returns - Discount = $40,000 - $1,400 - $1,158]		$37,442
		(To record the payment made to Troy Wholesalers)

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2. Journal Entries that Troy Wholesalers records for these transactions
No.	Date	General Journal	Debit	Credit
1	May 11	Accounts Receivable	$40,000
		Sales		$40,000
		(To record credit Sales)
2	May 11	Cost of Goods Sold	$30,000
		Merchandise Inventory		$30,000
		(To record the Cost of Goods Sold)
3	May 12	Sales returns and Allowances	$1,400
		Accounts Receivable		$1,400
		(To record the sales returns)
4	May 12	Merchandise Inventory	$1,050
		Cost of Goods Sold		$1,050
		(To decrease cost of goods sold for sales return)
5	May 20	Sales discounts                       [Amount receivable x 3% = (Sales - Sales returns) x 3% = ($40,000 - $1,400) x 3%]	$1,158
		Cash                                       [Sales - Sales returns - Discount = $40,000 - $1,400 - $1,158]	$37,442
		Accounts Receivable    [Sales - Sales returns = $40,000 - $1,400]		$38,600
		(To record the payment received from Sydney retailing)