Exercise 5-3 Analyzing and recording merchandise transactions-both buyer and seller LO P1, P2

Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice price of $16,000 and credit terms of 3/10, n/60. The merchandise had cost Mesa $10,912. Santa Fe paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.


1(a)
Prepare entries that the buyer should record for the purchase.

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To prepare the entries that the buyer should record for the purchase, we need to understand the terms and information given in the question. Here's how you can do it:

1. Determine the net purchase price: The net purchase price is the invoice price minus any discounts allowed. In this case, the invoice price is $16,000, and the credit terms are 3/10, n/60. This means that Santa Fe Company gets a 3% discount if they pay within 10 days. To calculate the net purchase price, subtract the discount from the invoice price:

$16,000 - (3% of $16,000) = $15,520.

2. Record the purchase of merchandise: Santa Fe Company purchased the merchandise from Mesa Company, so we need to record this transaction. Use the following entry:

Debit Purchases (an expense account) for $15,520.
Credit Accounts Payable for $15,520.

The Purchases account is used to keep track of the cost of merchandise purchased for resale, and the Accounts Payable account is used to record the amount owed to the seller (Mesa Company).

Note: Since the buyer uses a perpetual inventory system, the Purchases account is debited directly instead of using the periodic inventory system's Purchases account and Purchase Returns and Allowances account.

That's it! These are the entries that the buyer (Santa Fe Company) should record for the purchase transaction.