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10points Return to question Item 2 Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 3/10, n/60 and an invoice price of $15,700
10points
Return to question
Item 2
Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 3/10, n/60 and an invoice price of $15,700. The merchandise had cost Mesa $10,707. Assume that both buyer and seller use a perpetual inventory system and the gross method.
1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.
2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.
Expert Solution
1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.
| No. | Account titles and explanation | Debit | Credit |
| a) | Merchandise inventory | $15,700 | |
| Accounts payable | $15,700 | ||
| (To record purchase of merchandise inventory) | |||
| b) | Accounts payable | $15,700 | |
| Merchandise inventory ($15,700*3%) | $471 | ||
| Cash ($15,700*97%) | $15,229 | ||
| (To record cash paid within the discount period) | |||
| c) | Accounts payable | $15,700 | |
| Cash | $15,700 | ||
| (To record cash paid after the discount period) |
2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.
| No. | Account titles and explanation | Debit | Credit |
| a-1) | Accounts receivable | $15,700 | |
| Sales | $15,700 | ||
| (To record sales) | |||
| a-2) | Cost of goods sold | $10,707 | |
| Merchandise inventory | $10,707 | ||
| (To record cost of goods sold) | |||
| b) | Cash ($15,700*97%) | $15,229 | |
| Sales discounts ($15,700*3%) | $471 | ||
| Accounts receivable | $15,700 | ||
| (To record cash received before the discount period) | |||
| c) | Cash | $15,700 | |
| Accounts receivable | $15,700 | ||
| (To record cash received after the discount period) |
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