Question

12. Prepare the necessary journal entries on the books of Ahmed Car wash Company to record the following transactions, assuming a perpetual inventory system is used. Ahmed purchased the goods from ABC Company. (3 marks) a) Ahmed purchased S55,000 of merchandise from ABC Company on account, terms 3/10, n/30. The goods cost ABC Company $32,500. Ahmed returned $6,000 of damaged merchandise for credit. Ahmed paid for the merchandise purchased within 10 days (b) (c)

Answer 1

12.

Journal entry

Accounts title and explanation	Debit	Credit
Inventory	$55,000
Accounts Payable		$55,000
(Purchased merchandise from ABC company)
Accounts Payable	$6,000
Inventory		$6,000
(Returned damaged merchandise for credit)
Accounts Payable	$49,000
Inventory		$1,470
Cash		$47,530
(Paid for the merchandise purchased)

Explanation : Accounts Payable = Purchased merchandise - Return of damaged merchandise

Accounts Payable = $55,000 - $6,000 = $49,000

Inventory = Accounts payable × discount%

= $49,000*3% = $1,470

(i)

Journal entry

Accounts title and explanation	Debit	Credit
Inventory	$45,000
Accounts Payable		$45,000
(Purchased merchandise from DBA company)
Accounts Payable	$4,000
Inventory		$4,000
(Returned damaged merchandise for credit)
Accounts Payable	$41,000
Inventory		$820
Cash		$40,180
(Paid for the merchandise purchased)

Explanation : Accounts Payable = Purchased merchandise - Return of damaged merchandise

Accounts Payable = $45,000 - $4,000 = $41,000

Inventory = Accounts payable × discount%

= $41,000*2% = $820