Question

Problem 6-2 Journalize merchandise transactions on both buyer's and seller's books (LO. 1, 3, 4) Mars Musical Instrument Company and Tiger Company engaged in the following trans. actions with each other during July 2018: July 2 Mars Musical Instrument Company purchased merchandise on account with a list price of $54,000 from Tiger Company. The terms were 3/EOM, n/60, FOB shipping point, freight collect. Trade discounts of 15%, 10%, and 5% were granted by Tiger Company. 5 The buyer paid the freight bill on the purchase of July 2, $1,250. 6 The buyer returned damaged merchandise with an invoice price of $2,800 to the seller and received full credit. On the last day of the discount period, the buyer paid the seller for the merchandise. Prepare all the necessary journal entries for the buyer and the seller. Required Problem 6-3 The full

Answer 1

In books of Buyer or Mars musical instrument company :

Date	Account title	Debit	credit
July 2	Merchandise inventory	39245
	Accounts payable		39245
July 5	Merchandise inventory	1250
	cash		1250
July 6	Accounts payable	2800
	Merchandise inventory		2800
July 31	Accounts payable (39245-2800)	36445
	Merchandise inventory (36445*.03)		1093
	cash		35352

#

Price after trade discount : List price(1-D1)(1-D2)(1-D3)

                          = 54000(1-.15)(1-.10)(1-.05)

                          = 54000 *.85 *.90 *.95

                          = 39244.5 (ROUNDED TO 39245)

In books of seller

Date	Account title	Debit	credit
July 2	Accounts receivable	39245
	sales revenue		39245
July 5	No entry in books of seller as paid by buyer
July 6	Sales return and allowance	2800
	Accounts receivable		2800
July 31	cash	35352
	Sales discount	1093
	Accounts receivable		36445

#Trade discount are not recorded in books of accounts.