Illustrate the effects on the accounts and financial statements of the following
ID: 2452080 • Letter: I
Question
Illustrate the effects on the accounts and financial statements of the following related transactions of CT Diagnostic Company:
a. Purchased $560,000 of merchandise from Schultz co. on account, terms 2/10, n/30.
b. Paid the amount owed on the invoice within the discount period.
c. Discovered that $40,000 of the merchandise was defective and returned items, receiving credit.
d. Purchased $25,000 of merchandise from Schultz co, on account, terms n/30,
e. Received a check for the balance owed from the return in (c), after deducting for the purchase in (d).
Explanation / Answer
a) Merchandise Purchased Dr 560000 Accounts Payable Cr 560000 ( Purchased merchandise from Schultz co on account terms 2/10,n/30) b) Accounts Payable Dr 560000 Cash Cr 548800 Discount on Purchase Cr 11200 ( To record payment made for purchase within discount period ) Discount = 560000 * 2% =11200 c) Accounts Payable Dr 39200 Discount on Purchase Dr 800 Merchandise Purchased Cr 40000 ( To record return of defective merchandise) As the merchandise paid was net of discount,the entry would also be recorded net of discount discount = 40000 * 2% = 800 ,and balance will be due from SchultzCo d) Merchandise Purchased Dr 25000 Accounts Payable Cr 25000 ( Purchased merchandise from Schultz co on account terms n/30) e) Cash Dr 14200 Accounts Payable Cr 14200 ( To record balance payment received from Schultz co) ie 39200-25000 =14200