I need help with this problem. Could someone possibly explain to me how to prepare the journal entry for this problem?
Prepare journal entries to record each of the following purchases transactions of a merchandising company.
Show supporting calculations and assume a perpetual inventory system.
Mar. 5 Purchased 500 units of product with a list price of $5 per unit. The purchaser is granted a
trade discount of 20%; terms of the sale are 2/10, n/60; invoice is dated March 5.
Mar. 7 Returned 50 defective units from the March 5 purchase and received full credit.
Mar. 15 Paid the amount due from the March 5 purchase, less the return on March 7.
To prepare the journal entries for the given purchases transactions, follow these steps:
1. Determine the net cost of the purchased units:
- List price of each unit: $5
- Trade discount rate: 20%
- Calculation: Net cost per unit = List price per unit - (List price per unit x Trade discount rate)
- Net cost per unit = $5 - ($5 x 0.20) = $4 per unit
2. Record the purchase transaction on March 5:
- Debit the Inventory account for the total net cost of the purchased units: $4 x 500 units = $2,000
- Credit the Accounts Payable account for the same amount: $2,000
- Journal entry:
Date Accounts Debit Credit
Mar. 5 Inventory $2,000
Accounts Payable $2,000
3. Record the return transaction on March 7:
- Debit the Accounts Payable account for the net cost of the returned units: $4 x 50 units = $200
- Credit the Inventory account for the same amount: $200
- Journal entry:
Date Accounts Debit Credit
Mar. 7 Accounts Payable $200
Inventory $200
4. Calculate the amount paid after deducting the return:
- Multiply the net cost per unit by the number of returned units: $4 x 50 units = $200
- Subtract the returned amount from the total amount due: $2,000 - $200 = $1,800
5. Record the payment of the amount due on March 15:
- Debit the Accounts Payable account for the amount paid: $1,800
- Debit the Purchase Discounts account for the discount taken: $1,800 x 0.02 (2%) = $36
- Credit the Cash account for the total payment made: $1,800 - $36 = $1,764
- Journal entry:
Date Accounts Debit Credit
Mar. 15 Accounts Payable $1,800
Purchase Discounts $36
Cash $1,764
These journal entries record the purchases transactions, return, and subsequent payment in a step-by-step manner.
To prepare the journal entry for each of the purchases transactions, follow these steps:
1. Identify the date of the transaction and the details of the purchase.
2. Calculate the purchase cost after applying any trade discounts. Multiply the list price by the trade discount rate to determine the net cost per unit.
3. Calculate the total cost of the purchase by multiplying the net cost per unit by the number of units purchased.
4. Determine the payment terms and any discounts offered. For example, the terms "2/10, n/60" indicate a 2% discount if paid within 10 days, with the full amount due within 60 days.
5. Record the journal entry using the following accounts:
- Purchases or Inventory (debit): Increase the value of the inventory or purchases account.
- Accounts Payable (credit): Record the amount owed to the supplier.
Now let's prepare the journal entries for each transaction:
1. March 5: Purchased 500 units of product with a list price of $5 per unit, and granted a trade discount of 20%.
- Calculate the net cost per unit: $5 - (20% x $5) = $4 per unit.
- Calculate the total cost: $4 x 500 units = $2,000.
- Journal entry:
- Debit Purchases or Inventory: $2,000.
- Credit Accounts Payable: $2,000.
2. March 7: Returned 50 defective units from the March 5 purchase and received full credit.
- Journal entry:
- Debit Accounts Payable: $200 (50 units x $4 per unit).
- Credit Purchases or Inventory: $200.
3. March 15: Paid the amount due from the March 5 purchase, less the return on March 7.
- Calculate the payment amount after deducting the return: $2,000 - $200 = $1,800.
- Journal entry:
- Debit Accounts Payable: $1,800.
- Credit Cash or Accounts Payable: $1,800.
Remember to include supporting calculations for each transaction to provide transparency and clarity in your journal entries.