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10 January, 18:49

Santa Fe Retailing purchased merchandise "as is" (with no returns) from Mesa Wholesalers with credit terms of 3/10, n/60 and an invoice price of $24,000. The merchandise had cost Mesa $16,000. Assume that both buyer and seller use a perpetual inventory system and the gross method.

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  1. 10 January, 18:54
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    The entries prepared recorded by the buyer and the seller is provided below.

    Explanation:

    1. 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.

    (a) Credit Purchase

    Merchandise inventory = $24,000 (Debit) Accounts payable = $24,000 (Credit)

    (b) Cash payment within the discount period

    Accounts payable = $24,000 (Debit) Merchandise inventory = $720 (Credit) Cash = $24,000 * (100% - 3%) = $23,280 (Credit)

    (c) Cash payment after the discount period

    Accounts payable = $24,000 (Debit) Cash = $24,000 (Credit)

    2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

    (a) Credit sale

    Accounts receivables = $24,000 (Debit) Sales = $24,000 (Credit)

    COGS entry

    Cost of goods sold = $16,000 (Debit) Merchandise inventory = $16,000 (Credit)

    (b) Cash collection within the discount period

    Cash = $24,000 * (100% - 3%) = $23,280 (Debit) Sales discount = $720 (Debit) Accounts receivable = $24,000 (Credit)

    (c) Cash collection after the discount period

    Cash = $24,000 (Debit) Accounts receivable = $24,000 (Credit)
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