Question

Golf World sold merchandise to Mulligans for $83,000, offering terms of 1/15, n/30. Mulligans paid for the merchandise within the discount period. Both companies use perpetual inventory systems.

a. Prepare journal entries in the accounting records of Golf World to account for this sale and the subsequent collection. Assume the original cost of the merchandise to Golf World had been $6,500.
b. Prepare journal entries in the accounting records of Mulligans to account for the purchase and subsequent payment. Mulligans records purchases of merchandise at net cost.
c. Assume that, because of a change in personnel. Mulligans failed to pay for this merchandise within the discount period. Prepare the journal entry in the accounting records of Mulligans to record payment after the discount period.

Answer 1

Answer and Explanation:

The journal entries are shown below:

a.

Account receivable Dr $83,000

          To Sales $83,000

(Being sales is recorded on account)

Cost of goods sold Dr $6,500

     To Inventory $6,500

(Being cost of the merchandise is recorded)

Cash $82,170

Sales discount $830 ($83,000 × 1%)

      To Account receivable $83,000

(being cash received is recorded)

b.

Inventory Dr $82,170

   To Account payable $82,170

(being inventory purchased on account)

Account payable Dr $82,170

       To Cash $82,170

(being cash paid is recorded)

c.

Account payable $82,170

Lost on purchase discount $830

    To Cash $83,000

(Being cash payment is recorded)