Question

Question 1 The following transactions occurred in April and May. Both companies use a perpetual inventory system. Apr. 5 6 8 Crane Company purchased merchandise from DeVito Company for $12,400, terms 2/10, n/30, FOB shipping point. DeVito had paid $8,100 for the merchandise. The correct company paid freight costs of $330. Crane Company returned damaged merchandise to DeVito Company and was given a purchase allowance of $1,700. DeVito determined the merchandise could not be repaired and sent it to the recyclers. The merchandise had cost DeVito $1,230. Crane paid the amount due to DeVito Company in full. May 4 Prepare the journal entries to record the above transactions for Crane Company. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS

Answer 1

Journal entries for Crane Company:

Date	Account title and Explanation	Debit	Credit
April 5	Purchase A/c	12400
	To DeVito Company		12400
April 6	Freight A/c	330
	To Cash/Bank A/c		330
April 8	DeVito Company	1700
	To Return outward A/c		1700
4-May	DeVito Company	10700
	To Cash/Bank A/c		10700

Note- Since the sale type is FOB, the freight is to be paid by the buyer.

Journal entries for DeVito Company:

Date	Account title and Explanation	Debit	Credit
April 5	Purchase A/c	8100
	To Cash/Bank A/c		8100
April 5	Crane Company	12400
	To Purchase A/c		12400
April 8	Return Inward A/c	1700
	To Crane Company		1700
4-May	Cash/Bank A/c	10700
	To Crane Company		10700

Note- No journal entry is required to record cost of $ 1230 as it can't be repaired and hasn't fetch any value for DeVito Co.

Gross Profit earned by DeVito Company:

Gross profit= Net sales- Cost of Goods Sold= (12400-1700)- 8100= $2600