Page 262 - Accounting Principles (A Business Perspective)

6. Merchandising transactions

subtotal of the Income Statement debit column. The difference between the totals of the two Income Statement
columns (USD 5,843) represents net income and is the amount of the third closing entry.

Demonstration problem
The following transactions occurred between Companies C and D in June 2010:
June 10 Company C purchased merchandise from Company D for USD 80,000; terms 2/10/EOM, n/60, FOB
destination, freight prepaid.
11 Company D paid freight of USD 1,200.

14 Company C received an allowance of USD 4,000 from the gross selling price because of damaged goods.
23 Company C returned USD 8,000 of goods purchased because they were not the quality ordered.
30 Company D received payment in full from Company C.
a. Journalize the transactions for Company C.
b. Journalize the transactions for Company D.
Solution to demonstration problem

a.
General Journal
Date Account Titles and Explanation Post. Debit Credit
Ref.
2010 1 Company C
June 0 Purchases 8 0 0 0 0
Accounts Payable 8 0 0 0 0
Purchased merchandise from Company D; terms
2/10/EOM, n/60
1 Accounts Payable 4 0 0 0
4
Purchase Return and Allowances 4 0 0 0
Received an allowance from Company D for damaged
goods.

2 Accounts Payable 8 0 0 0
3
Purchase Returns and Allowances 8 0 0 0
Returned merchandise to Company D because of
improper quality

3 Accounts Payable ($80,000 - $4,000 - $8,000) 6 8 0 0 0
0
Purchase Discounts ($68,000 x 0.02) 1 3 6 0
Cash ($68,000 - $1,360) 6 6 6 4 0
Paid the amount due to Company D.

b.

General Journal
Date Account Titles and Explanation Post. Debit Credit
Ref.
2010 1 Company D
June 0 Accounts Receivable 8 0 0 0 0
Sales 8 0 0 0 0
Sold merchandise to Company C; terms 2/10/EOM,
n/60

1 Delivery Expense 1 2 0 0

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