Record journal entries for the following purchase transactions of Apex Industries.
Transactions
| Nov. 6 | Purchased 24 computers on credit for $560 per computer. Terms of the purchase are 4/10, n/60, invoice dated November 6. |
|---------|------------------------------------------------------------------------------------------------------------------|
| Nov. 10 | Returned 5 defective computers for a full refund from the manufacturer. |
| Nov. 22 | Paid account in full from the November 6 purchase. |
Journal entries:
| November 6 | $\square$ | $\square$ | |
|-------------|------------------------------------------|------------|-------------------------------------------------|
| | $\square$ | | $\square$ |
| | To record inventory purchased on account. | | |
| | | | |
| November 10 | $\square$ | $\square$ | |
| | $\square$ | | $\square$ |
| | To record inventory returned with a full refund. | | |
| | | | |
| November 22 | $\square$ | $\square$ | |
| | $\square$ | | $\square$ |
| | To record payment. | | |
Answer (1)
Calculate the total purchase amount on November 6: 24 × $560 = $13 , 440 .
Calculate the value of returned computers on November 10: 5 × $560 = $2 , 800 .
Calculate the discount amount on November 22: ( $13 , 440 − $2 , 800 ) × 0.04 = $425.60 .
Calculate the final payment amount on November 22: ( $13 , 440 − $2 , 800 ) − $425.60 = $10 , 214.40 . The final journal entries are created based on these calculations.
See final journal entries in step 12
Explanation
Calculate Total Purchase Amount On November 6, Apex Industries purchased 24 computers on credit at $560 each. We need to calculate the total purchase amount to record the initial transaction.
Total Purchase Calculation The total purchase amount is calculated as follows: 24 computers × $560 /computer = $13 , 440
Journal Entry for November 6 The journal entry for November 6 will debit Inventory (an asset) and credit Accounts Payable (a liability) for the total purchase amount.
Calculate Value of Returned Computers On November 10, Apex Industries returned 5 defective computers. We need to calculate the value of these returned computers to record the return.
Returned Computers Value Calculation The value of the returned computers is calculated as follows: 5 computers × $560 /computer = $2 , 800
Journal Entry for November 10 The journal entry for November 10 will debit Accounts Payable (reducing the liability) and credit Inventory (reducing the asset) for the value of the returned computers.
Determine Discount Eligibility On November 22, Apex Industries paid the account in full. The original terms were 4/10, n/60, meaning a 4% discount is available if paid within 10 days. Since the purchase was on November 6 and payment was on November 22, the payment is made within the 10-day discount period.
Calculate Discount Base First, we need to calculate the amount subject to the discount, which is the original purchase amount less the value of the returned computers: $13 , 440 − $2 , 800 = $10 , 640
Calculate Discount Amount Next, we calculate the discount amount: $10 , 640 × 0.04 = $425.60
Calculate Final Payment Amount Now, we calculate the final payment amount by subtracting the discount from the discounted base: $10 , 640 − $425.60 = $10 , 214.40
Journal Entry for November 22 The journal entry for November 22 will debit Accounts Payable (to remove the liability), credit Cash (for the amount paid), and credit Inventory (for the purchase discount taken).
Final Journal Entries Here are the journal entries:
November 6
Account
Debit
Credit
Inventory
$13,440
Accounts Payable
$13,440
To record inventory purchased on account.
November 10
Account
Debit
Credit
Accounts Payable
$2,800
Inventory
$2,800
To record inventory returned with a full refund.
November 22
Account
Debit
Credit
Accounts Payable
$10,640
Cash
$10,214.40
Inventory
$425.60
To record payment with discount.
Examples
Understanding and recording purchase transactions, returns, and discounts is crucial for businesses to accurately track their inventory and financial obligations. For instance, a retail store purchasing goods on credit needs to account for these transactions to manage its cash flow and ensure accurate financial reporting. By properly recording these entries, the store can determine its actual cost of goods sold and profitability, which is essential for making informed business decisions, such as pricing strategies and inventory management.
