Paramount Co., a women’s clothing store, purchased $60,000 of merchandise from a supplier on account

Paramount Co., a women’s clothing store, purchased $60,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. Paramount Co. returned $12,000 of the merchandise, receiving a credit memo, and then paid the amount due within the discount period. Journalize Paramount Co.’s entries to record (a) the purchase, (b) the merchandise return, and (c) the payment.


Answer:

a.
 Merchandise Inventory 60,000
Accounts Payable 60,000
b.
 Accounts Payable 12,000
Merchandise Inventory 12,000
Accounts Payable 48,000
c.
 Cash 47,040
Merchandise Inventory 960





The debits and credits from four related transactions are presented in the following T accounts. Describe each transaction.


Cash Accounts Payable
(2) 300 (3) 4,000 (1) 21,000
(4) 16,830 (4) 17,000
Merchandise Inventory
(1) 21,000 (3) 4,000
(2) 300 (4) 170
Answer:
(1) Purchased merchandise on account at a cost of $21,000.
(2) Paid freight, $300.
(3) An allowance or return of merchandise was granted by the creditor, $4,000.
(4) Paid the balance due within the discount period: debited Accounts Payable, $17,000, and credited Merchandise Inventory for the amount of the discount, $170, and Cash, $16,830.