E5-4 On June 10, Diaz Company purchased $8,000 of merchandise from Taylor Compan

Question

E5-4 On June 10, Diaz Company purchased $8,000 of merchandise from Taylor Company FOB shipping point, terms 2/10, n/30. Diaz pays the freight costs of $400 on June 11. Dam- aged goods totaling $300 are returned to Taylor for credit on June 12. The fair value of these goods is $70. On June 19, Diaz pays Taylor Company in full, less the purchase dis count. Both companies use a perpetual inventory system. Instructions (a) Prepare separate entries for each transaction on the books of Diaz Company. (b) Prepare separate entries for each transaction for Taylor Company. The merchandise purchased by Diaz on June 10 had cost Taylor $4,800.

Explanation / Answer

Diaz Company (buyer) Date Account titles & Explanations Debit Credit 10-Jun Raw materials inventory 8,000 Accounts payable 8,000 Raw material inventory 400 cash 400 12-Jun Accounts payable 300 raw materials inventory 300 19-Jun Accounts payable 7700 Raw materials inventory 154 cash 7546 Taylor Company (seller) Date Account titles & Explanations Debit Credit 10-Jun Account receivable 8,000 sales 8,000 cost of goods sold 4,800 raw materials inventory 4,800 12-Jun Sales return and allowance 300 account receivable 300 Raw materials inventory 70 Cost of goods sold 70 Cash 7,546 Sales discount 154 Account receivable 7,700

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