Harwick Company Exercise 5-2

1. on April 5, purchased merchandise from Botham Company for $23,000, terms 2/10, net/30, FOB shipping point.

2. on April 6, paid freight costs of $900 on merchandise purchased from Botham.

3.on April 7, purchased equipment on account for $26,000.

4. on April 8, returned damaged merchandise to Botham Company and was granted a $3,000 credit for returned merchandise.

5. on April 15, paid the amount due to Botham Company in full.

A. Prepare the journal entries to record these transactions on the books of Harwicks Co. under a perpetual inventory system.

B. Assume that Harwick Co. paid the balance due to Botham Company on May 4 instead of April 15. Prepare the journal entry to record this payment.

Show a journal entry for the Harwick Company that April 5, merchandise was purchased from Botharn Company for $23,000, terms 2/10, net/30,FOB shipping point

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.4/5 transaction debit

merchandise

credit transaction

debit merchandise

A. To prepare the journal entries for the transactions, we need to identify the accounts involved and the impact on those accounts. Here are the journal entries for each transaction:

1. April 5: Purchased merchandise from Botham Company for $23,000, terms 2/10, net/30, FOB shipping point.
Debit: Merchandise Inventory - $23,000
Credit: Accounts Payable - $23,000
(This records the purchase of merchandise on account.)

2. April 6: Paid freight costs of $900 on merchandise purchased from Botham.
Debit: Freight Expense - $900
Credit: Cash - $900
(This records the payment for freight costs.)

3. April 7: Purchased equipment on account for $26,000.
Debit: Equipment - $26,000
Credit: Accounts Payable - $26,000
(This records the purchase of equipment on account.)

4. April 8: Returned damaged merchandise to Botham Company and was granted a $3,000 credit for returned merchandise.
Debit: Accounts Payable - $3,000
Credit: Merchandise Inventory - $3,000
(This reverses the accounts payable and inventory related to the returned merchandise.)

5. April 15: Paid the amount due to Botham Company in full.
Debit: Accounts Payable - $20,200
Debit: Cash Discount - $400 (2% of $20,000)
Credit: Cash - $19,800
(This records the payment made to Botham Company after deducting the cash discount for early payment.)

B. Assuming that Harwick Co. paid the balance due to Botham Company on May 4 instead of April 15, the journal entry to record the payment would be:
Debit: Accounts Payable - $20,000
Debit: Cash - $200 (The remaining payment after deducting the cash discount)
Credit: Cash Discount Lost - $400
Credit: Cash Discount - $200 (2% of $10,000)
(This records the payment made to Botham Company after missing out on the cash discount and the cash discount lost.)