Question

Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 2/10, n/60 and an invoice price of $16,300. The merchandise had cost Mesa $11,117. Santa Fee Retailing paid $10,000 for the merchandise six days after the invoice date. The remaining balance was paid 45 days after the invoice date. Assume that both buyer and seller use the gross method.

REQUIRED:

1. Prepare entries that the buyer records for the (a) purchase and (b) cash payments.
2. Prepare entries that the seller records for the (a) sale and (c) cash collections.

Answer 1

Requirement 1

No.	Account	Debit	Credit
1	Merchandise	16,300
	Account payable		16,300
	(Purchase merchandise on account)
2	Account payable	10,000
	Discount account ( 10,000 x 2%)		200
	Cash		9,800
	(Payment of 10,000 in six days)
3	Account payable	6,300
	Cash		6,300
	(Payment of remaining amount after 45 days)

Requirement 2

No.	Account	Debit	Credit
1	Account receivable	16,300
	Merchandise		16,300
	(Merchandise sold)
2	Cash	9,800
	Discount account	200
	Account receivable		10,000
	(10,000 received in six days)
3	Cash	6,300
	Account receivable		6,300
	(Remaining amount received)