The following is a series of related transactions between

Hip
The following is a series of related transactions between Hip Pants and Sleek, a chain of retail
clothing stores:Oct. 12 Hip Pants sold Sleek 300 pairs of pants on account, terms 1/10, n/30.
The cost of these pants to Hip Pants was $20 per pair, and the sales price was $60 per
pair.Oct. 15 Wings Express charged $50 for delivering this merchandise to Sleek. These
charges were split evenly between the buyer and the seller and were paid immediately in
cash.Oct. 16 Sleek returned four pairs of pants to Hip Pants because they were the wrong size.
Hip Pants allowed sleek full credit for this return.Oct. 22 Sleek paid the remaining balance due
to Hip Pants within the discount period.Both companies use a perpetual inventory
system.Instructionsa. Record this series of transactions in the general journal of Hip Pants. (The
company records sales at gross sales price.)b. Record this series of transactions in the general
journal of Sleek. (The company records purchases of merchandise at net cost and uses a
Transportation-in account to record transportation charges on inbound shipments.)c. Sleek does
not always have enough cash on hand to pay for purchases within the discount period.
However, it has a line of credit with its bank, which enables Sleek to easily borrow money for
short periods of time at an annual interest rate of 12 percent. (The bank charges interest only
for the number of days until Sleek repays the loan.) As a matter of general policy, should Sleek
take advantage of 1/10, n/30 cash discounts even if it must borrow the money to do so at an
annual rate of 12 percent? Explain fully—and illustrate any supporting computations.View
Solution:
The following is a series of related transactions between Hip
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