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Milan Co
Milan Co., a women s clothing store, purchased $120,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. Milan Co. returned $16,000 of the merchandise, receiving a credit memorandum, and then paid the amount due within the discount period. Illustrate the effects on the accounts and financial statements of Milan Co. to record (a) the purchase, (b) the merchandise return, and (c) the payment.
Expert Solution
a. Journalize Milan Co.'s entry for the purchase.
| Account | Debit | Credit |
|---|---|---|
| Purchases | $120,000 | |
| Accounts Payable | $120,000 |
Accounts Payable was used because the merchandise was sold on account.
b. Journalize Milan's entry for the return of the merchandise for credit.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $16,000 | |
| Purchases | $16,000 |
Supplier issued a credit memo.
c. Journalize Milan Co.'s entry for the payment of the invoice within the discount period.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $104,000 | |
| Cash | $101,920 | |
| Purchase Discount | $2,080 |
Purchase Discount= Invoice Price x 2%
Purchase Discount= $104,000 x 2%
Purchase Discount= $2,080
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