Question

Record transactions of purchasing company. On October 5, Splish Brothers Company buys merchandise on account from Bramble Company. The selling price of the goods is $4,700, and the cost to Bramble Company is $2,820. On October 8, Splish Brothers returns defective goods with a selling price of $720 and a fair value of $125.Record the transactions of Splish BrothersCompany, assuming a perpetual approach.

Answer 1

Splish Brothers Company records a debit to Inventory and a credit to Accounts Payable for $4,700 on the purchase date. When returning defective goods, they debit Accounts Payable and credit Inventory for $720.

Step-by-step explanation:

On October 5, when Splish Brothers Company buys merchandise from Bramble Company on account, the journal entry on Splish Brothers' books, assuming a perpetual inventory system, would be to debit Inventory for $4,700 and credit Accounts Payable for $4,700, reflecting the purchase of merchandise.

On October 8, when Splish Brothers returns defective goods, they would record the return by debiting Accounts Payable for $720 and crediting Inventory for $720, which shows the reduction of obligation to Bramble Company as well as the decrease in inventory due to the return of defective goods. The fair value of the returned goods is not relevant to this entry on Splish Brothers' books as it pertains to the valuation on Bramble Company's side.

Answer 2

See explanation section

Step-by-step explanation:

October 5 Merchandise Inventory Debit $4,700

Accounts Payable - Bramble Company Credit $4,700

To record the merchandise Inventory purchase on account. As the company uses perpetual inventory system, merchandise inventory becomes debit instead of purchase account.

October 8 Accounts payable Debit $720

Merchandise Inventory credit $720

To record the return of defective goods to Bramble Company. (Using perpetual inventory system)