Santa Fe Retailing purchased merchandise \"as is\" (with no returns) from Mesa W
ID: 2543219 • Letter: S
Question
Santa Fe Retailing purchased merchandise "as is" (with no returns) from Mesa Wholesalers with credit terms of 3/10, n/60 and an Involce price of $16,500. The merchandise had cost Mesa $11,253. 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 pentod, and (c) cash payment after the discount period. 2 Prepare enties thet the seller records for the (a) sale. (b) cash collection within the discount period, and (c) cash collection after the discount perlod Complete this question by entering your answers in the tabs below. Required 1 Required 2 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. View transaction list Journal entry worksheet 3 Record Santa Fe Retailing purchased merchandise "as is" (with no returms) from Mesa Wholesalers with credit terms of 3/10, n/60 and an invoice price of $16,500. Note: Enter debits before credits. Transaction General Journal redit Record entry Clear entry View general journal Required 2 >Explanation / Answer
A) In the books of buyer :
a) - at the time of purchase : Buyer has purchased the merchandise which is a regular course of business i.e it is a stock for the buyer. therefore Purchase will be debited as the stock comes in and seller account will be credited as it will be stood as liabilities in the books. the entry will be :
Purchase A/c Dr. 16,500
To Mesa Wholesalers a/c 16,500
(Being merchandise purchased)
b). At the time of cash payment within discount period : 3/10 , n/60 is a discount term offered by seller to buyers which means that if the buyer pays within 10 days he will get a discount of 3%, if not then the full amount has to be paid within 60 days. In this case Santa Fe has to pay the amount within 10 days to avail 3% cash discount. The entry will be :
We have already credited Mega Wholesaler in the Santa Fe's books. Now if Santa Fe pays the amount that credit account should be knocked off therefore it will debit the account of Mega Wholesaler and the cash is going out therefore that will be credited. Further, Santa Fe is getting a discount of 3% which is a income thus this will be credited. :
Mega Wholesaler A/c Dr. 16,500
To Cash discount A/c 495
To Cash A/c 16,005
(Being cash paid and got discount)
c) At the time of payment outside the discount period i.e. after 10 days : This will be a simple entry as there will be no discount. Mega wholesaler will be debited and cash will be credited as it is goint out.
Mega Wholesaler A/c Dr. 16,500
To Cash A/c 16,500
(Being amount paid)
B) IN the books of Seller :
a) at the time of sale :
Mega wholesaler is selling merchandise for 16,500 which cost him $11,253 therefore making a profit of 16,500-11,253 = 5,247. Santa Fe will be debited in the books as it will be stood as debtors in the books of Mega wholesaler. ( remember - debit the receiver, credit the giver for personal account). Second, cost of Sales will be credited, third It is making a profit thus profit on sale will be credited.
Santa Fe A/c Dr. 16,500
To Sales A/c 11,253
To Profit on sale A/c 5,247
(Being goods sold and profit booked)
b) at the time of payment within discount period :
Cash will come in thus will be debited (Remember - debit what comes in; credit what goes out for real accounts). Second, a discount will be given which is a loss to seller thus will be debited; Third, debtors stood previously in the books will be wiped off.
Cash A/c Dr. 16,005
Discount A/c Dr. 495
To Santa Fe A/c 16,500
(Being payment received and discountgiven)
c) payment received after discount period : Cash will be debited and Santa Fe wil be wiped off
Cash A/c Dr. 16,500
To Santa Fe A/c 16,500
(Being payment received)
Solution ends here.
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