Question

recording purchase transactions
mathis company and reece company use the perpetual inventory system. the following transactions occurred during the month of april:
a. on april 1, mathis purchased merchandise on account from reece with credit terms of 2/10, n/30. the selling price of the merchandise was $3,100, and the cost of the merchandise sold was $2,450.
b. on april 1, mathis paid freight charges of $100 cash to have the goods delivered to its warehouse.
c. on april 8, mathis returned $1,000 of the merchandise, which had originally cost reece $700.
d. on april 10, mathis paid reece the balance due.
required:

1. prepare the journal entry to record the april 1 purchase (ignore any freight charges) of merchandise by mathis company. if an amount box does not require an entry, leave it blank.

april 1
(purchased inventory on account)
prepare the journal entry to record the payment of freight on april 1. if an amount box does not require an entry, leave it blank.
april 1
(recorded the payment of freight charges)

1. prepare the journal entry to record the april 8 return of merchandise by mathis. if an amount box does not require an entry, leave it blank.

april 8
(returned merchandise)

1. prepare the journal entry to record the april 10 payment to reece. if an amount box does not require an entry, leave it blank.

april 10
(paid accounts payable within discount period)

Explanation:

Step1: Record April 1 purchase

Under perpetual inventory system, when inventory is purchased on account, Inventory is debited (increase in asset) and Accounts Payable is credited (increase in liability). The amount is the selling price of the merchandise.

$$\begin{align*} &\text{April 1}\\ &\text{Inventory} \quad 3100\\ &\text{Accounts Payable} \quad 3100 \end{align*}$$

Step2: Record April 1 freight payment

Freight charges for inventory purchase (when inventory is the destination) are added to the cost of inventory. So Inventory is debited (increase in asset) and Cash is credited (decrease in asset).

$$\begin{align*} &\text{April 1}\\ &\text{Inventory} \quad 100\\ &\text{Cash} \quad 100 \end{align*}$$

Step3: Record April 8 return

When merchandise is returned, Accounts Payable is debited (decrease in liability) and Inventory is credited (decrease in asset). The amount is the selling - price of the returned merchandise.

$$\begin{align*} &\text{April 8}\\ &\text{Accounts Payable} \quad 1000\\ &\text{Inventory} \quad 1000 \end{align*}$$

Step4: Calculate April 10 payment

The original purchase was $3100$, with a return of $1000$. So the amount owed before discount is $3100 - 1000=2100$. The credit terms are $2/10$, $n/30$ (2% discount if paid within 10 days). The discount is $2100\times0.02 = 42$. The cash paid is $2100-42 = 2058$.
Accounts Payable is debited for the amount owed before discount ($2100$), Inventory is credited for the discount (as it reduces the cost of inventory), and Cash is credited for the amount paid.

$$\begin{align*} &\text{April 10}\\ &\text{Accounts Payable} \quad 2100\\ &\text{Inventory} \quad 42\\ &\text{Cash} \quad 2058 \end{align*}$$

Answer:

1.

Date	Account Title	Debit	Credit
	Accounts Payable		3100
April 1	Inventory	100
	Cash		100

2.

Date	Account Title	Debit	Credit
	Inventory		1000

3.

Date	Account Title	Debit	Credit
	Inventory		42
	Cash		2058