On june 10, tuzun company purchased $8,000 of merchandise on account from epps company, fob shipping point, terms 2/10, n/30. tuzun company pays the freight costs of $400 on june 11. damaged goods totaling $300 are returned to epps for credit on june 12. the fair value of these goods is $70. on june 19, tuzun company pays epps company in full, less the purchase discount. both companies use a perpetual inventory system.

(a) prepare separate entries for each transaction on the books of tuzun company.

(b) prepare separate entries for each transaction for epps company. the merchandise purchased by tuzun on june 10 had cost epps $4,800.

(a) Preparation of the separate entries for each transaction on the books of Tuzun Company.

On the books of Tuzun Company:

June 10

Dr Merchandise Inventory $8,000

Cr Accounts payable  $8,000

(Being merchandise inventory purchased )  

June 11  

Dr Merchandise inventory  $400

Cr Cash  $400

(Being freight charges incurred)  

June 12

Dr Account payable  $300

Cr Merchandise inventory $300

(Being damaged goods returned)

June 19

Dr Accounts payable  $7,700

($8,000-$300)

Cr Merchandise Inventory $154

(2%×$7,700)

Cr Cash  $7,546                    

($7,700-$154)

(b) Preparation of the  separate entries for each transaction for Epps Company.

On the books of Epps Company:

June 10

Dr Accounts receivable $8,000

Cr  Service revenue $8,000

(Being sales recorded)

Dr Cost of goods sold $4,800

Cr  Merchandise inventory $4,800

(Being cost of goods sold recorded)

June 12

Dr Accounts receivable $300

Cr Service revenue  $300

(Being damaged goods returned)

Dr Cost of goods sold $70

Cr Merchandise inventory  $70

(Being cost of goods sold recorded)

June 19

Dr Cash  $7,546

($7,700-$156)

Dr Sales discount $156

(2×$7,700)

Cr Accounts receivable $7,700

($8,000+$300)

(Being payment received)

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Explanation:

The journal entries are shown below:

On the books of Tuzun Company:

On June 10

Merchandise Inventory A/c $8,000

           To Accounts payable A/c $8,000

(Being inventory purchased on credit)  

On June 11  

Merchandise inventory A/c Dr $400

           To Cash A/c $400

(Being freight is paid by cash)  

On June 12

Account payable A/c Dr $300

      To Merchandise inventory A/c $300

(Being returned inventory is recorded)

On June 19

Accounts payable A/c Dr $7,700 ($8,000 - $300)

     To Cash A/c   $7,546                    

     To Merchandise Inventory A/c $154 ($8,000 - $300) × 2%  

(Being due amount is paid and the remaining balance is credited to the cash account)

On the books of Epps Company:

On June 10

Accounts receivable A/c Dr $8,000

        To Service revenue A/c $8,000

(Being service provided is recorded)

Cost of goods sold A/c Dr $4,800

       To Merchandise inventory A/c $4,800

(Being inventory sold at cost)

On June 12

Accounts receivable A/c Dr $300

        To Service revenue A/c $300

(Being returned inventory is recorded)

Cost of goods sold A/c Dr $70

          To Merchandise inventory A/c $70

(Being fair value is recorded)

On June 19

Cash A/c Dr $7,546

Sales discount A/c Dr $156

      To Accounts receivable A/c $7,700

(Being payment is received)

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