Question

Purchase-Related Transactions

Journalize entries for the following related transactions of Lilly Heating & Air Company: (If an amount box does not require an entry, leave it blank.)

a. Purchased $44,000 of merchandise from Schell Co. on account, terms 2/10, n/30.

	Inventory
	Accounts Payable-Schell Co.

b. Paid the amount owed on the invoice within the discount period.

	Accounts Payable-Schell Co.
	Cash

c. Discovered that merchandise with an invoice amount of $8,800 purchased in (a) was defective and returned items, receiving credit.

	Accounts Payable-Schell Co.
	Inventory

d. Purchased $6,800 of merchandise from Schell Co. on account, terms n/30.

	Inventory
	Accounts Payable-Schell Co.

e. Received a refund from Schell Co. for return in (c) less the purchase in (d).

	Cash
	Accounts Payable-Schell Co.

Answer 1

No.	Particulars	Debit	Credit
a	Inventory	$43,120
	Accounts payable - Schell co.		$43,120
	(merchandise purchased on account)
	*Accounts payable = $44,000 * (1 - 0.02)   =   $43,120.
b	Accounts payable - Schell co.	$43,120
	Cash		$43,120
	(cash paid for merchandise net of discount @2%)
c	Accounts payable - Schell co.	$8,624
	Inventory		$8,624
	(inventory returned net of discount)
	Returned merchandise amount = $8,800 * (1 - 0.02) =   $8,624
d	Inventory	$6,800
	Accounts payable - Schell co.		$6,800
	(merchandise purchased on account)
e	Cash	$1,824
	Accounts payable - Schell co.		$1,824
	(receiving the refund money)
	Cash = $8,624 - $6,800 =   $1,824.