Question

Webster Company was established on July 1. Its sales terms are 2/10, n/30. Credit terms for its purchases vary with the supplier. Selected transactions for the first month of operations are given below. Unless noted, all transactions are on account and involve merchandise held for resale. Webster Company uses the perpetual inventory system.

July

1 Purchased goods from Dawson Inc $2,500; terms 1/10, n/30
2 Purchased goods from Penn Co, $4,500; terms 2/10, n/30
3 Paid freight on shipment from Dawson, $300
5 Sold merchandise to Ward, Inc. $1,400 ($1,100 cost)
5 Paid freight on shipment to Ward, Inc $90 (Delivery expense)
8 Returned $500 worth of the goods purchased July 1 from Dawson, Inc. because some goods were damaged. Dawson approved the return.
9 Received returned goods from Ward, Inc. worth $200 ($150 cost)
10 Paid Dawson Inc the amount due
10 Purchased goods from Dorn Company with a list price of $2,600. Terms 2/10, n/30
11 Paid freight on shipent from Dorn Co., $150
15 Sold merchandise to Colby Corporation, $3,200 ($2,400 cost)
16 Mailed a check to Penn Company for the amount due on its July 2 invoice
18 Received an allowance of $200 from Dorn Company for defective merchandise purchased on July 10
19 Paid Dorn Company the amount due
25 Received the amount due from Colby Corp.

Prepare the necessary journal enteries for the Webster Company

Answer 1

Answer:

Purchases journal Total $6,523

Sales journal Total $1,100

Return Outward journal Total $700

Return inward journal Total $150

Cash: book Cr $300, Ledger Dr:$300

Cash book Cr:$90, Ledger Dr :$90

Cash book Cr $150, Ledger Dr $150

Explanation:

To calculate the discount, we use the formula

Effective Cost = 1/1-I × Days in the year/CP - DP

Where CP = credit period, DP = discount period, i = discount rate percent

July 1 purchase 1/10 net 30

= 0.01/1-0.01 × 360/30-10

= 0.01/1-0.01 ×360/20

=0.01/0.99 × 360/20

= 3.6/19.8

= 0.18 × 100 = 18%

July 2 purchase 2/10 net 30

= 0.02/1-0.02 × 360/30-10

= 0.02/1-0.02 ×360/20

= 0.02/0.98 × 360/20

= 7.2/19.6

= 0.37 × 100 = 37%

July 10 purchase 2/10net 30

= 0.02/1-0.02 × 360/30-10

= 0.02/0.98×360/20

= 7.2/19.6

= 0.37 ×100 = 37%

Purchases journal

Date. Particular. Folio. Details. Total

$ $

July 1. Dawson Inc. 2,500

Less: discount 18%

( 0.18 × 2,500) 450. 2,050

July 2. Penn co. 4,500

Less: discount

(0.37 × 4,500) 1,665. 2,835

July 10. Dorn company. 2,600

Less: discount

(0.37 × 2,600) 962. 1,638

Total July 31. Purchases Account Dr: 6,523

Sales journal

Date. Particular. Folio. Details. Total

$ $

July 5. Ward Inc. (1,400-1,100) 300. 300

July15. Colby corporation. (3,200-2,400) 800. 800

Total July 31. Sales Account :Cr. 1,100

Return Outward journal

Date. Particular. Folio. Details. Total

$ $

July 8. Dawson inc. 500.

July 18. Dorn company. 200

Total July 31. Return Outward &

Allowance Account Cr: 700

Return inward journal

Date. Particular. Folio. Details. Total

$ $

July 9. Ward inc. 50

Total July 31. Return inward &

Allowance Account Dr: 50