Question

Exercise 2: (5 marks) Ephrayim Company uses a perpetual inventory system. During July, the following transactions and events occurred. Xian Company sold 12 motors at a cost of $40 each to Slater Brothers Supply Company, terms 1/10, n/30. The motors cost Xian $25 each. July 13 Two defective motors were returned to Xian. July 16 Xian Company received payment in full from Slater Brothers. July 23 Instruction: Journalize the above transactions Solution:

Answer 1

Date	Account Title & Explanation	Amount $	Amount $
Jul 13	Slater Brothers Supply ($40 * 12)	480.00
	Sales		480.00
	To record sales of 12 motors at a cost of 40
	Cost of goods sold - COGS (12 * $25)	300.00
	Inventory		300.00
	To record the transfer of inventory at cost price to COGS
July 16	Return Inwards (2 * $40)	80.00
	Slater Brothers Supply		80.00
	To record return inwards of inventory
	Inventory (2 * 25)	50.00
	Cost of goods Sold		50.00
	To record of inventory receipts returned
Jul 23	Cash ($400 - $4)	396.00
	Discount allowed	4.00
	Slater Brothers supply		400.00

For the transaction on July 16, we can also debit the allowance for returns if it is available,else we can directly debit return inwards account. Here I assume that there is no allowance created for possible goods return.

For Jul 23 transaction, the payment terms is 1/10 and 0/30, As the payment is made within 10 days, Slater is entitled for a discount of 10%. The current outstanding from Slater after considering the returns of $80 is $400.00

The discount if applied it is $400 * 1/ 100 = $4