Question

Purchase-Related Transactions

Journalize entries for the following related transactions of Lilly Heating & Air Company using the net method under a perpetual inventory system. (If an amount box does not require an entry, leave it blank.)

a. Purchased $43,000 of merchandise from Schell Co. on account, terms 1/10, n/30.

  

b. Paid the amount owed on the invoice.

  

c. Discovered that merchandise with an invoice amount of $8,600 purchased in (a) was defective and returned items, receiving credit.

  

d. Purchased $7,100 of merchandise from Schell Co. on account, terms n/30.

  

e. Received a refund from Schell Co. for return in (c) less the purchase in (d).

  

Answer 1

Journal Entries:
Date	Account Titles and Explanation	Debit	Credit
a)	Merchandise Inventory	$43,000
	Accounts Payable - Schell Co.		$43,000
	(To record the purchase of inventory on account)
b)	Accounts Payable - Schell Co.	$43,000
	Discount Received ($43,000*1/100)		$430
	Cash ($43,000 - $430)		$42,570
	(To record the payment to creditors for the amount owed along with discount)
c)	Accounts Receivable - Schell Co.	$8,600
	Merchandise Inventory		$8,600
	(To record the return of defective merchandise and receiving credit)
d)	Merchandise Inventory	$7,100
	Accounts Payable - Schell Co.		$7,100
	(To record the purchase of inventory on account)
e)	Accounts Payable - Schell Co.	$7,100
	Cash ($8,600 - $7,100)	$1,500
	Accounts Receivable - Schell Co.		$8,600
	(To record the receipt of credit for return less the purchase in d)