Question

Mom & Pop Shop uses the periodic inventory system.
Below are information for the month of May 2020.
May 1st. Purchased merchandises, on account, from Costco,
valued at $25,000. FOB Destination for $600 was paid by cash
and by the responsible party. Credit terms were 3/10, n/30.
May 6th. Mom & Pop Shop returned merchandises to Costco,
valued at $5,000.
May 10th. Mom & Pop Shop settled the account.
Prepare the 3 journal entries in the Diagonal Box
for Mom & Pop Shop.

Answer 1

Journal

Date	Account title	Debit	Credit
May 1	Purchases	25,000
	Accounts payable - Costro		25,000
May 6	Accounts payable	5,000
	Purchase returns and allowances		5,000
May 10	Accounts payable - Costro	20,000
	Cash		19,400
	Purchase discount		600

Final amount due = Cost of goods purchased - Cost of goods returned

= 25,000 - 5,000

= $20,000

Discount amount = Final amount due x Discount percentage

= 20,000 x 3/10

= $600

Cash payment to be made = Final amount due - Discount amount

= 20,000 - 600

= $19,400