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. The merchandise had cost Mesa $16,000. Santa Fe paid within the discount period. Prepare entries that Santa Fe Company should record for the merchandise purchase and the cash payment.
I'm not quite sure what to put in the entries. Do I include $16,000? or just the Price and purchase discount?
thanks in advance for the help!! =]
To record the merchandise purchase, the Santa Fe Company should make the following entry:
1. Debit: Merchandise Inventory (or Cost of Goods Sold, if the inventory has already been sold)
2. Credit: Accounts Payable
The amount to be recorded for the merchandise purchase should be the invoice price of $24,000. The cost to Mesa Company ($16,000) is not used in this entry as it represents their cost and is not applicable to Santa Fe's purchase.
As for the cash payment, since Santa Fe paid within the discount period, they are entitled to a purchase discount. The entry would be:
1. Debit: Accounts Payable (or Merchandise Inventory, if it was initially recorded in inventory)
2. Debit: Purchase Discounts
3. Credit: Cash
The amount to be recorded for the cash payment would be the invoice price ($24,000) minus the discount amount, which is $24,000 multiplied by the discount rate (3%), resulting in a discount of $720.
So, the cash payment entry would look like this:
1. Debit: Accounts Payable (or Merchandise Inventory) - $24,000
2. Debit: Purchase Discounts - $720
3. Credit: Cash - $23,280
Please note that the specific account titles and amounts may vary based on your company's chart of accounts and accounting practices. It's always recommended to consult with an accountant or refer to your company's guidelines for accurate recording of transactions.