Q20E - Horngren'S Financial And Managerial Accounting

Question

Howie Jewelers had the following purchase transactions. Journalize all necessary transactions. Explanations are not required.

Jun. 20 Purchased inventory of \(5,100 on account from Sanders Diamonds, a jewelry importer. Terms were 2/15, n/45, FOB shipping point.

20 Paid freight charges, \)400.

Jul. 4 Returned \(600 of inventory to Sanders.

14 Paid Sanders Diamonds, less return.

16 Purchased inventory of \)3,500 on account from Southboro Diamonds, a jewelry importer. Terms were 2/10, n/EOM, FOB destination.

18 Received a $300 allowance from Southboro Diamonds for damaged but usable goods.

24 Paid Southboro Diamonds, less allowance, and discount.

Step-by-Step Solution

Answer

The total of debits and credits is $18,036.

Step 1: Meaning of Purchase Transactions

In accounting, purchase transactions refer to the events that bring the goods in. Under this process, a business concern acquires goods from the supplier to resell them to generate profits.

Step 2: Preparation of journal entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
Jun 20	Merchandise inventory	5,100
	Accounts payable		5,100
Jun 20	Freight expenses	400
	Cash		400
Jul 4	Accounts payable	600
	Merchandise inventory		600
Jul 14	Accounts payable (5100-600)	4,500
	Cash		4,500
Jul 16	Merchandise inventory	3,500
	Accounts payable		3,500
Jul 18	Accounts payable	300
	Merchandise inventory		300
Jul 24	Accounts payable (3200-3200*2%)	3,136
	Cash		3,136