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Merchandise with a list price of $4,700 is purchased on account, terms FOB shipping point, 1/10, n/30. The seller prepaid freight costs of $100.

Merchandise with a list price of $4,700 is purchased on account, terms FOB shipping point, 1/10, n/30. The seller prepaid freight costs of $100. Prior to payment, $1,400 of the merchandise is returned. The correct amount is paid within the discount period.

Record the foregoing transactions of the buyer in the sequence indicated below, assuming a perpetual inventory system is used.

(a) Purchased the merchandise.
(b) Recorded receipt of the credit memo for merchandise returned.
(c) Paid the amount owed.


ANS:
4. Travis Company purchased merchandise on account from a supplier for $7,500, terms 2/10, net 30. Travis returned $1,350 of the merchandise and received full credit. Travis Company paid for the merchandise within the discount period.

Under a perpetual inventory system, record all of the journal entries required for the above transactions.






5. Purdy Company is in the electronics industry and the price it pays for inventory is decreasing. Instructions Indicate which inventory method will:
a. provide the highest ending inventory. b. provide the highest cost of goods sold. c. result in the highest net income. d. result in the lowest income tax expense. e. produce the most stable earnings over several years

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