Prepared by Michailo Kosiakov 2389

1. YOUR TURN
Recording a Retailer’s Purchase Transactions
Record the journal entries for the following purchase transactions of a retailer.

Dec. 3 Purchased $500 worth of inventory on credit with terms 2/10, n/30, and invoice dated December 3.

Dec. 6 Returned $150 worth of damaged inventory to the manufacturer and received a full refund.

Dec. 9 Paid the account in full

Journal
Date Account Debit Credit
Dec. 3 Merchandise inventory 500
Accounts 500
payable
Dec. 6 Accounts payable 150
Merchandise 150
inventory
Dec. 9 Accounts payable 350
Merchandise 7
inventory 343
Cash

2. Answer the following Questions:

LO 6.1 What are some benefits to a retailer for offering a discount to a customer?
It helps solidify a long-term relationship with customers, encourages them to
purchase more, and decreases the time it takes for the company to see a liquid asset
(cash). Cash can be used for other purposes immediately, such as reinvesting the
business, paying down loans quicker, and distributing dividends to shareholders.
 
LO 6.1 What do credit terms of 4/10, n/30 mean in regard to a purchase?
 Prepared by Michailo Kosiakov 2389

The “4” represents a discount rate of 4%, the “10” represents the discount
period in days, and the “n/30” means “net of 30” days, representing the entire
payment period without a discount application. So, “4/10, n/30” means, the
company will get a 4% discount on their purchase if they pay in 10 days.
Otherwise, they have 30 days from the date of the sale to pay in full, no discount
received.
3. 
LO 6.1 What is the difference between a sales return and a sales allowance?
A sales return occurs when a customer returns merchandise for a full refund.
A sales allowance occurs when a customer keeps the merchandise and is issued a
partial refund.
4. 
LO 6.1 If a retailer made a purchase in the amount of $350 with credit terms of
2/15, n/60. What would the retailer pay in cash if they received the discount?
Account Debit Credit
Accounts payable 350
Cash 343
Purchase 7

5. 
LO 6.2 What are two advantages and disadvantages of the perpetual inventory
system?
Advantages of Perpetual Inventory System
1. Real-Time Updates
2. Managing Multiple Locations Easily

Disadvantages of Perpetual Inventory System

1. Expensive Technique.
2. Breakages and Spoilage Not Accounted For.

6. 
LO 6.2 What are two advantages and disadvantages of the periodic inventory
system?
 Prepared by Michailo Kosiakov 2389

Advantages of Periodic Inventory System

1. less expensive and time consuming than perpetual inventory systems.
Disadvantages of Periodic Inventory System
1. Requires more physical counts to be conducted.
2. The need for frequent physical counts of inventory can suspend business
operations each time this is done

7. 
LO 6.2 Sunrise Flowers sells flowers to a customer on credit for $130 on October
18, with a cost of sale to Sunrise of $50. What entry to recognize this sale is
required if Sunrise Flowers uses a periodic inventory system?
Oct 18 Accounts Receivable 130
Sales 130

Under periodic inventory system the cost of sale entry is will only be required at
the end of the period under periodic

8. 
LO 6.2 Sunrise Flowers sells flowers to a customer on credit for $130 on October
18, with a cost of sale to Sunrise of $50. What entry to recognize this sale is
required if Sunrise Flowers uses a perpetual inventory system?
Oct 18 Accounts Receivable 130
Sales 130
Oct 18 Cost of goods sold 50
Merchandise Inventory 50

The first entry is used to recognize sale and the second entry is used to recognize
cost of sale under perpetual inventory system

9. 
 Prepared by Michailo Kosiakov 2389

LO 6.3 Name two situations where cash would be remitted to a retailer from a
manufacturer after purchase.
Cash could be remitted to a retainer if the retailer returns merchandise to a
manufacturer after payment, or if the retailer receives an allowance for damaged
merchandise after payment.
10. 
LO 6.3 If a retailer purchased inventory in the amount of $750, terms 2/10, n/60,
returned $30 of the inventory for a full refund, and received an allowance for $95,
how much would the discount be if the retailer remitted payment within the
discount window?
1. $750 - $30 – 95$ = $625
2. $625 * 0,02 = $12,50

11. 
LO 6.3 A retailer discovers that 50% of the total inventory items delivered from
the manufacturer are damaged. The original purchase for all inventory was $1,100.
The retailer decides to return 20% of the damaged inventory for a full refund and
keep the remaining 80% of damaged inventory. What is the value of the
merchandise returned?
1. 50% of 1,100 is $550 (1,100 * 0,5)
2. 20% of $550 is $110 (550 * 0,2)
So, the value of merchandise returned is $110