Question

On October 7, XYZ sells ABC Company $5,000 of inventory, Terms: 2/15/n45; FOB Destination; on account On October 10th, ABC returns $1,000 of the inventory because of it being defective. On October 15, ABC pays XYZ, the full amount, less the discount. Answer the following questions: a. What is the entry by XYZ on October 7 th? b. What is the entry by ABC on October 7 th > c. What is the entry by XYZ on October 10th for the return? d. What is the entry by ABC on October 10 th for the return? e. What is the entry by XYZ for the receipt of cash on October 15 th? f. What is the entry by ABCCo for the payment on October 15 th? Fill this section out: Sales SRA Sales Dis Net Sales COGS Gross Profit

Answer 1

On October 7th, XYZ records a sale and ABC records a purchase. On October 10th, both entities record the return of defective goods, and on October 15th, they record ABC's payment with a discount. The gross profit calculation requires the cost of goods sold which is not provided.

Step-by-step explanation:

Recording Transactions for XYZ and ABC Company October 7th Entries

a. XYZ's entry would be:
Debit Accounts Receivable $5,000
Credit Sales $5,000

b. ABC's entry would be:
Debit Inventory $5,000
Credit Accounts Payable $5,000

October 10th Entries on Returns

c. XYZ's entry for the return would be:
Debit Sales Returns and Allowances $1,000
Credit Accounts Receivable $1,000

d. ABC's entry for the return would be:
Debit Accounts Payable $1,000
Credit Inventory $1,000

October 15th Entries on Payment

e. XYZ's entry for receipt of cash would be:
Debit Cash $3,920
Debit Sales Discounts $80
Credit Accounts Receivable $4,000

f. ABC's entry for payment would be:
Debit Accounts Payable $4,000
Credit Cash $3,920
Credit Inventory $80

Calculating Net Sales

Sales $5,000
Sales Returns and Allowances (SRA) $1,000
Net Sales = Sales - SRA = $4,000
COGS (Not provided, assume x)
Gross Profit = Net Sales - COGS (Cannot determine without COGS)