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Q3SE

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 296

Short Answer

Consider the following transactions for Burlington Drug Store:

Feb. 2 Burlington buys $23,800 worth of inventory on account with credit terms of 2/15, n/30, FOB shipping point.

4 Burlington pays a $50 freight charge.

9 Burlington returns $5,200 of the merchandise due to damage during shipment.

14 Burlington paid the amount due, less return and discount.

Requirements

1. Journalize the purchase transactions. Explanations are not required.

2. In the final analysis, how much did the inventory cost Burlington Drug Store?

Answer

The cost of inventory is $18,278.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Credit Term

In accounting, credit term refers to the terms and conditions associated with the payment of goods sold or bought by a business entity. Credit term generally depicts the discount and due days of payment.

Step 2: Journal entries for purchase transactions

Date

Accounts and Explanation

Debit ($)

Credit ($)

Feb 2

Merchandise Inventory

23,800

Accounts payable

23,800

Feb 4

Merchandise inventory

50

Cash

50

Feb 9

Accounts payable

5,200

Merchandise inventory

5,200

Feb 14

Accounts payable (23,800-5,200)

18,600

Cash (18,600-372)

18,228

Merchandise inventory (18,600*2%)

372

Step 3: Computation of inventory cost

Hence, the Company Burlington Drug Store consisting an inventory cost of $18,278.

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