Question

Exercise 4-4 (Algo) Purchasing transactions LO P1

Prepare journal entries to record the following transactions of Recycled Fashion retail store. Recycled Fashion uses a perpetual inventory system and the gross method.

March 3 Purchased $1,140 of merchandise from GreenWorld Company with credit terms of 2/15, n/60, invoice dated March 3, and FOB shipping point.
March 4 Paid $65 cash for shipping charges on the March 3 purchase.
March 5 Returned to GreenWorld unacceptable merchandise that had an invoice price of $140.
March 18 Paid GreenWorld for the March 3 purchase, net of the discount and the returned merchandise.
March 19 Purchased $520 of merchandise from PeopleFirst Corporation with credit terms of 1/10, n/30, invoice dated March 19, and FOB destination.
March 21 After negotiations, received from PeopleFirst a $20 allowance (for scuffed merchandise) toward the $520 owed on the March 19 purchase.
March 29 Sent check to PeopleFirst paying for the March 19 purchase, net of the allowance and the discount.

Answer 1

The journal entries for Recycled Fashion retail store are prepared based on each transaction, incorporating the perpetual inventory system's account adjustments and applying discounts and allowances where applicable.

Step-by-step explanation:

To record the transactions for Recycled Fashion retail store that uses a perpetual inventory system and the gross method, we would create journal entries for each of the events listed.

March 18: Payment to GreenWorld Company, considering the discount and returned merchandise.

Accounts Payable $1,000 ([$1,140 - $140] - 2% discount of $1,000)

Cash $980

Merchandise Inventory $20

March 21: Receipt of allowance from PeopleFirst Corporation.

Accounts Payable $20

Merchandise Inventory $20

March 29: Payment to PeopleFirst, considering allowance and discount.

Accounts Payable $500 ([$520 - $20] - 1% discount of $500)

Merchandise Inventory $5

Cash $495

Note that the merchandise inventory account is adjusted for discounts received and the allowance, these being recognized as reductions in the cost of inventory.