1. Wizard Industries purchased $13,100 of merchandise on February 1, 2012, subje

Question

1. Wizard Industries purchased $13,100 of merchandise on February 1, 2012, subject to a trade discount of 8% and with credit terms of 3/15, n/60. It returned $3,500 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.

(a) Assuming that Wizard uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method.

                                        Debit                           Credit

Feb. 1. _________    

            _________

Feb. 4. _________

            _________

Feb 13. _________

            _________

            _________

Need help journalizing these trasactions!

Explanation / Answer

a)

Feb 1

Dr Merchandise Inventory 12052

Cr Accounts Payable 12052

Purchased 13100 worth of merchandise with 8% trade discount. The 8% trade discounted is not recorded in the books.

Feb 4

Dr Accounts Payable 3220

Cr Purchase returns and allowances 3220

Purchase return. Since a 8% trade discount was applied to the merchandise, it should also be applied to the purchase return. 3220 = 3500 (0.92)

Feb 13

Dr Accounts payable 8832

Cr Cash 8567

Cr Purchase discount 265

Paid the remaining payable within 15 days from day of purchase. Payment is subject to a 3% cash discount.

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