Question

No Date General Journal Debit Credit Apr 02 Merchandise inventory 5,900 Accounts payable-Lyon 5,900 Apr 03 Merchandise inventory 290 Cash 290 Apr 04 Accounts payable-Lyon Merchandise inventory 650 650 Apr 17Accounts payable-Lyon Merchandise inventory Cash Apr 18 Merchandise inventory 11,100 Accounts payable-Frist 11.100 6 Apr 21 Accounts payable-Frist 400 400 Merchandise inventory

I need help calculating the net of allowance and the discount for number 7. I also need help calculating the net of discount and the returned merchandise for number 4 please.

Answer 1

Firstly you need to understand what credit terms like 1/10 n 30 or 2/15 n 45 means.

1/10 n or net 30 is a way of providing cash discounts on purchases. It means that if the bill is paid within 10 days, there is a 1% discount. Otherwise, the total amount is due within 30 days.

Likewise, 2/15 n or net 45 means that if the bill is paid within 15 days, there is a 2% discount. Otherwise, the total amount is due within 30 days.

Solution: 4

In this Problem, Purchase made on Apr 2 was of $5900 on the terms of credit 2/15 n 60 that means that if the bill is paid within 15 days, there is a 2% discount. Otherwise, the total amount is due within 60 days.

So if the amount of bill was paid in 15 days from Apr 2, i.e. till Apr 17 there will a discount of 2% on bill amount.

Now we have to calculate the amount to be paid along with the goods returned and discount gained.

Date of Payment Apr 17, so retail store will be eligible for discount.

Purchase made : $5900

Returned : $650

Remaining Merchandise = $5900-$650= $5250

Discount availed = $5250*2%= $105

So cash payment to be made = $5250-$105 = $5145

The amount of discount will be reduced from merchandise to reflect its true value of purchase.

The accounting entry for the payment is to be made as follows:

Date Particulars Amt. Dr.($) Amt. Cr.($)

Apr 17 Account Payable--LYON 5250

Merchandise Inventory 105

Cash 5145

   (Being Payment made to LYON

   for purchases made on Bill of

Apr 2 net of returns and Discount

   of $105)

Note: Since merchandise which have been returned amounting $650 have already been recorded on Apr 04, the account balance of LYON has already been reduced by the same. There is no need to calculate discount on the same or to present that again.

Solution: 7

In this Problem, Purchase made on Apr 18 was of $11,100 on the terms of credit 1/10 n 30 that means that if the bill is paid within 10 days, there is a 1% discount. Otherwise, the total amount is due within 30 days.

So if the amount of bill was paid in 10 days from Apr 18, i.e. till Apr 28 there will a discount of 1% on bill amount.

Now we have to calculate the amount to be paid along with the allowance and discount gained.

Student need to understand that allowance is kind of excess discount that need not to be paid. However when we will calculate the discount we will take the bill value not the bill value subtracted by the allowance.

Date of Payment Apr 28, so retail store will be eligible for discount.

Purchase made : $11,100

Returned : $0

Remaining Merchandise = $11,100

Discount availed = $11,100*1%= $111

So cash payment to be made = $11,100-$111-$400 = $10589

The amount of discount will be reduced from merchandise to reflect its true value of purchase.

The accounting entry for the payment is to be made as follows:

Date Particulars Amt. Dr.($) Amt. Cr.($)

Apr 28 Account Payable--Frist 10,700

Merchandise Inventory 111

Cash 10,589

   (Being Payment made to Frist

   for purchases made on Bill of

Apr 18 net of allowance and Discount

   of $111)

Note: Since allowance has already been recorded amounting $400 on Apr 21, the account balance of Frist has already been reduced by the same. There is no need to calculate discount by reducing that or to present that again.