Question

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 $24,900. The merchandise had cost Mesa $16,982. Assume that both buyer and seller use a periodic inventory system and the gross method.1. Prepare entries that the buyer should record for (a) the purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.2. Prepare entries that the seller should record for (a) the sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

Answer 1

Answer:

Santa Fe Retailing ( Buyer )

(a) the purchase,

Merchandise $24,900 (debit)

Account Payable - Mesa Wholesalers $24,900 (credit)

Being Recognition of Merchandise Purchased

(b) cash payment within the discount period,

Account Payable - Mesa Wholesalers $24,153 (debit)

Cash $24,153 (credit)

Being Recognition of Payment Made

(c) cash payment after the discount period

Account Payable - Mesa Wholesalers $24,900 (debit)

Cash $24,900 (credit)

Being Recognition of Payment Made

Mesa Wholesalers ( Seller)

(a) the purchase,

Trade Receivable - Santa Fe Retailing $ 24,900 (debit)

Revenue $ 24,900 (credit)

Being recognition of Revenue on Sale

Cost of Sales $16,982 (debit)

Merchandise $16,982 (credit)

Being recognition of Cost of Sale

(b) cash payment within the discount period,

Cash $24,153 (debit)

Trade Receivable - Santa Fe Retailing $24,153 (credit)

Being Recognition of Payment Received

Discount Allowed $747 (debit)

Trade Receivable -  Santa Fe Retailing $747 (credit)

Being Recognition of Discount Granted to Customer

(c) cash payment after the discount period

Cash $24,900 (debit)

Trade Receivable - Santa Fe Retailing $24,900 (credit)

Being Recognition of Payment Received

Explanation:

Santa Fe Retailing ( Buyer )

Buyer Recognizes Assets of Merchandise purchased and de-recognise cash when payment is made

Mesa Wholesalers ( Seller)

Seller Recognises revenue and Cost of Sale on the date of Sale

Seller also recognise Cash Receipts and Discount Allowed Expense (whenever payment is made within 10 days as in our case)