Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice price of $24,000 and credit terms of 3/10, n/60. Prepare entries that the buyer should record for the purchase

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 $26,300 and credit terms of 2/10, n/60. The merchandise had cost Mesa $17,937. Santa Fe paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.

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To prepare the entries for Santa Fe Company's purchase from Mesa Company, we need to record the initial purchase, any applicable discounts, and the subsequent payment. Here's how you can record these entries:

1. Purchase Entry:
Debit: Merchandise Inventory - $24,000
Credit: Accounts Payable - $24,000

Explanation: This entry records the purchase of merchandise inventory from Mesa Company.

2. Discount Entry (if applicable):
Debit: Accounts Payable - $720 (3% of $24,000)
Credit: Purchase Discounts - $720

Explanation: This entry reflects the discount amount that Santa Fe Company is eligible for, based on the credit terms of 3/10, n/60. The discount is calculated as 3% of the invoice price of $24,000.

3. Payment Entry:
Debit: Accounts Payable - $23,280 ($24,000 - $720)
Credit: Cash/Bank - $23,280

Explanation: This entry represents the payment made by Santa Fe Company to Mesa Company. The payment amount is the invoice price ($24,000) minus the discount ($720), which results in a net payment of $23,280.

It's important to note that the entry for the purchase discount and payment may vary based on specific accounting practices and policies. Therefore, it's always a good idea to consult with an accounting professional or refer to your organization's accounting guidelines for accurate recording.