6. (TCO B) Adjusting Entries: Wizard Industries purchase $12,000 of merchandise

Question

6. (TCO B) Adjusting Entries: Wizard Industries purchase $12,000 of merchandise on February 1, 2010, subject to a trade discount of 10% and with credit terms of 3/15/, n/60. It returned $3,000 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13. Assuming that Wizard uses the periodic method for recoding merchandise transactions, record the purchase, return, and payment using the gross method. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)

Explanation / Answer

Wizard Industries purchase $12,000 of merchandise on February 1, 2010, subject to a trade discount of 10% and with credit terms of 3/15/, n/60. Purchases Dr. 10800 (12000*.9) Accounts payable Cr. 10800 It returned $3,000 (gross price before trade or cash discount) on February 4. Accounts payable Dr. 2700 (3000*.9) Purchases returns an allowances Cr. 2700 The invoice was paid on February 13. Accounts payable Dr. 8100 (10800-2700) Purchase discounts Cr. 243 (8100*.03) Cash Cr. 7857 (8400-243)

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