On May 11, Smythe Co. accepts delivery of $31,500 of merchandise it purchases fo

Question

On May 11, Smythe Co. accepts delivery of $31,500 of merchandise it purchases for resale from Hope Corporation. With the merchandise is an invoice dated May 11, with terms of 3/10, n/90, FOB shipping point. The goods cost Hope $21,105. When the goods are delivered, Smythe pays $380 to Express Shipping for delivery charges on the merchandise. On May 12, Smythe returns $1,520 of goods to Hope, who receives them one day later and restores them to inventory. The returned goods had cost Hope $1,018. On May 20, Smythe mails a check to Hope Corporation for the amount owed. Hope receives it the following day. (Both Smythe and Hope use a perpetual inventory system.)

1.
Prepare journal entries that Smythe Co. records for these transactions.


2.
Prepare journal entries that Hope Corporation records for these transactions.

Explanation / Answer

Journal entries that Smythe Co. records for these transactions 11May yy Merchandise A/C Dr 31500 Acct Payable Cr 31500 (Purchase of goods from Hope Co 3/10, n/90) dd May yy Freight Exp Dr 380 Cash Cr 380 (Frieght charges as F.O.B. Shipping Point- the buyer had to pay to get the goods delivered) 12 May yy Acct Paybale Dr 1520 Merchandse A/C Cr 1520 (Good returend to Hope) 20 May yy Acct Payable Dr 29980 Purchase Disc Cr 899 Cash Cr 29081 (Pays within 10 days. So Disc =3%*(31500-1520) = 899) Journal entries that Hope Corporation records for these transactions 11 May yy Acct Rxable Dr 31500 Sales Cr 31500 (Record Sale to Smythe 3/10, n/90) 11 May yy Cost of goods sold Dr 21105 Merchandise inventory Cr 21105 (Sold merchandise on credit to Smuthe) 13 May Sales Returns and Allowances Dr 1520 Acct Rxable Cr 1520 13 May yy Merchandise inventory Dr 1018 COGS Cr 1018 (Record Sales Return at cost) 21 May yy Cash Dr 29081 Sales Discount Dr 899 Acct Rxable Cr 29980 (Collected outstanding receivable within discount period, 3% discount granted)

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