Question

Information related to Blue Co, is presented below.

1. On April 5, purchased merchandise on account from Kingbird Company for $26,400, terms 2/10, net/30. FOB shipping point.
2. On April 6, paid freight costs of $930 on merchandise purchased from Kingbird.
3. On April 7, purchased equipment on account for $41,900.
4. On April 8, returned $4,400 of merchandise to Kingbird Compamy
5. On April 15, paid the amount due to Kingbird Company in full.
Prepare the journal entries to record these transactions on the books of Blue Co.under a perpetual imventory system.

Answer 1

Blue Co. made a series of transactions including the purchase of merchandise and equipment, freight costs payment, merchandise returns, and settlement of accounts.

Step-by-step explanation:

The series of transactions related to Blue Co. purchasing merchandise and equipment on account, returning merchandise, and paying the amount due require several journal entries, which must be made under a perpetual inventory system.

1. April 5: Purchased merchandise on account from Kingbird Company.
   Inventory $26,400
   Accounts Payable $26,400
2. April 6: Paid freight costs, which are considered part of the inventory cost.
   Inventory $930
   Cash $930
3. April 7: Purchased equipment on account.
   Equipment $41,900
   Accounts Payable $41,900
4. April 8: Returned merchandise to Kingbird Company.
   Accounts Payable $4,400
   Inventory $4,400
5. April 15: Paid the amount due to Kingbird Company with the discount.
   Accounts Payable $22,000
   Inventory $440
   Cash $21,560

Note that the final payment on April 15 reflects the 2% discount on the net purchase amount after returns ($26,400 - $4,400) = $22,000.