Question

1. Prepare the journal entries for Star Inc. For the month of December: 12/2 Purchased $20,000 of merchandise from Tang Corp., terms 1/20, n/40; FOB shipping point 12/3 The appropriate party paid $150 for shipping costs related to the 12/2 transaction 12/6 Returned $2,000 of merchandise to Tang Corp for credit 12/10 Sold $500 of merchandise to R. Smith, terms 2/10, n/30; cost of merchandise was $120; FOB shipping point 12/11 The appropriate party paid $20 for shipping costs related to the 12/10 transaction 12/18 Received the balance due from R. Smith 12/21 Paid Tang Corp the balance du

Answer 1

1.Purchases (Dr.) $20,000

Accounts Payable (Cr.) $20,000

2.Shipping cost (Dr.) $150

Cash (Cr.) $150

3.Purchase return (Dr.) $2,000

Purchases (Cr.) $2,000

4.Account Receivable (Dr.) $500

Sales (Cr.) $500

5.Freight expense (Dr.) $20

Cash (Cr.) $20

Step-by-step explanation:

The journal entry at the time of purchase will be recorded as accounts payable for complete invoice amount and discount is not incorporated in the entry because it is not realized. The adjusting entry will be recorded when the discount is availed to adjust the transaction and reflect the discount effect in the book of accounts.