Question

During the months of January and February, Axe Corporation purchased goods from three suppliers The sequence of events was as follows:

Jan. 6 Purchased goods for $1,800 from Green with terms 2/10, n/30;
Jan 6 Purchased goods from Munoz for $1,500 with terms 2/10, n/30.
Jan 14 Paid Green in full.
Feb. 2 Paid Munoz in full
Feb 28 Purchased goods for $650 from Reynolds with terms 2/10, n/45.

Prepare journal entries to record the following transactions, assuming Axe uses a perpetual inventory system:
1. (Jan. 6) Record the inventory purchased of $1,800 on account from Green with terms 2/10, n/30.
2. (Jan. 6) Record the inventory purchased of $1,500 on account from Munoz with terms 2/10, n30.
3. (Jan. 14) Record the payment in full for the inventory to Green.
4. (Feb. 2) Record the payment in full for the inventory to Munoz.
5. (Feb. 28) Record the inventory purchased of $650 on account from Reynolds with terms 2/10, n/45.

Answer 1

1. (Jan. 6) Debit Accounts Payable - Green $1,800, Credit Inventory $1,800.

2. (Jan. 6) Debit Accounts Payable - Munoz $1,500, Credit Inventory $1,500.

3. (Jan. 14) Debit Accounts Payable - Green $1,800, Credit Cash $1,800.

4. (Feb. 2) Debit Accounts Payable - Munoz $1,500, Credit Cash $1,500.

5. (Feb. 28) Debit Accounts Payable - Reynolds $650, Credit Inventory $650.

Step-by-step explanation:

1. On January 6, Axe records the purchase of $1,800 on account from Green by debiting Accounts Payable - Green and crediting Inventory. This reflects the acquisition of goods on credit with terms 2/10, n/30.

2. Simultaneously on January 6, Axe records the purchase of $1,500 on account from Munoz by debiting Accounts Payable - Munoz and crediting Inventory. This also follows the terms 2/10, n/30.

3. On January 14, Axe pays Green in full. The entry involves debiting Accounts Payable - Green to reduce the liability and crediting Cash for the amount paid.

4. On February 2, Axe pays Munoz in full. The journal entry includes debiting Accounts Payable - Munoz to decrease the liability and crediting Cash for the payment made.

5. On February 28, Axe records the purchase of $650 on account from Reynolds by debiting Accounts Payable - Reynolds and crediting Inventory. The terms here are 2/10, n/45, indicating a longer allowable payment period.