Suppose KC Toys buys $20,000 worth of MegoBlock toys on Oct 1 st , 2014on credit

Question

Suppose KC Toys buys $20,000 worth of MegoBlock toys on Oct 1st, 2014on credit terms of 2/10, n/30. Some of the goods are damaged in shipment, so KC Toys returns $1,500 of the merchandise to MegoBlock on Oct 5th.

Required:

a)How much must KC Toys pay MegoBlock if KC Toys pays on Oct 8th?

b)Record the transactions in general journal format (i.e. Journal entries) for Oct 1st, Oct 5th and Oct 8th.   

c)On Oct 20th, KC Toys sold merchandise that cost $10,000 for $18,000 cash to its customer. Record this transactions in general journal format.

d)Prepare T-accounts. Assume cash account has a beginning balance of $50,000 for 2014.

Explanation / Answer

a) credit terms of 2/10, n/30- this means that the buyer can take an early payment discount of 2% of the amount owed if the amount is remitted within 10 days instead of the customary 30 days.

So KC Toys pays on Oct 8th which is within 10 days so it will get discout of 2%

From $20000 $1500 will be deducted as this is returned. So 2% on $18500 is 370. So the payment is 18500-370=$18130

USD$

b) 01.10.2014 Purchase of toys a/c Dr 20000

To Megoblock Toys 20000

(Being goods purchased from Megoblock)

05.10.2014 Megoblock a/c Dr 1500

To Purchase return of toys 1500

(being toys return due to damage to megoblock)

08.10.2014 Megoblock a/c Dr 18500

To Discount a/c 370

To Cash 18130

(Being payment made to megoblock after discount of 2%)

c) 20.10.2014 Cash a/c Dr 18000

To Sales of toys a/c 18000

(Being sales made to customer)

d) Dr Cr    Cash a/c USD $

Particulars Amount Particulars Amount To Opening balance 50000 By Megoblock 18130 To Sales of toys 18000 By closing balance 49870 total 68000 68000

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