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Handout No. 03 - Purchase Transactions

Christopher Biore Company engaged in five purchase transactions during the month. For each transaction, the company recorded the purchase, any returns, payment of freight charges, discounts taken, and final settlement paid to the supplier. The company's policy is to return goods within one day of receipt and pay for purchases within stated credit terms.

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April Sasam
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77 views4 pages

Handout No. 03 - Purchase Transactions

Christopher Biore Company engaged in five purchase transactions during the month. For each transaction, the company recorded the purchase, any returns, payment of freight charges, discounts taken, and final settlement paid to the supplier. The company's policy is to return goods within one day of receipt and pay for purchases within stated credit terms.

Uploaded by

April Sasam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

Christopher Biore Company engaged in the following purchase transactons during the month.

The company observes the policy


that all returns are made one day after the goods are received, and that all purchases are paid within the discount term. Also, in
all transactions, the shipping term freight collect is observed.

Purchase
List price FOB Terms Freight charges returns and Credit terms Trade discount
allowances
224,000.00 Shipping point 4,000.00 21,000.00 2/10, n/30 30%
126,000.00 Destination 9,000.00 - 1/10, n/30 20%
90,000.00 Shipping point 2,000.00 7,000.00 2/10, n/30 0%
41,000.00 Shipping point 1,000.00 9,000.00 n/30 25%
357,000.00 Destination 14,000.00 24,000.00 3/10, n/30 20%

Suggested answers:
A B C D E
List price 224,000.00 126,000.00 90,000.00 41,000.00 357,000.00
Less: Trade discounts 67,200.00 25,200.00 - 10,250.00 71,400.00
Invoice price 156,800.00 100,800.00 90,000.00 30,750.00 285,600.00
Less: Purchase returns and allowances 21,000.00 - 7,000.00 9,000.00 24,000.00
Net invoice price 135,800.00 100,800.00 83,000.00 21,750.00 261,600.00
Less: Purchase discounts 2,716.00 1,008.00 1,660.00 - 7,848.00
Less: freight - 9,000.00 - - 14,000.00
Net amount payable to supplier 133,084.00 90,792.00 81,340.00 21,750.00 239,752.00

Notes:
For FOB Destination transactions Althought it must be shouldered by the seller, the buyer paid the freight. Hence, the
buyer must be reimbursed with this amount. In this case, reimbursement is done by
deducting the freight cost from the amount due to the seller.

Page 1 of 4
Journal entries:

For transaction A:
Purchase Purchases 156,800.00
Accounts payable 156,800.00

Return of merchandise Accounts payable 21,000.00


Purchase returns and allowances 21,000.00

Payment of freight Freight in 4,000.00


Cash 4,000.00

Settlement of account to supplier Accounts payable 135,800.00


Cash 133,084.00
Purchase discounts 2,716.00

For transaction B:
Purchase Purchases 100,800.00
Accounts payable 100,800.00

Payment of freight Accounts payable 9,000.00


Cash 9,000.00

Settlement of account to supplier Accounts payable 91,800.00


Cash 90,792.00
Purchase discounts 1,008.00

For transaction C:
Purchase Purchases 90,000.00
Accounts payable 90,000.00

Page 2 of 4
Return of merchandise Accounts payable 7,000.00
Purchase returns and allowances 7,000.00

Payment of freight Freight in 2,000.00


Cash 2,000.00

Settlement of account to supplier Accounts payable 83,000.00


Cash 81,340.00
Purchase discounts 1,660.00

For transaction D:
Purchase Purchases 30,750.00
Accounts payable 30,750.00

Return of merchandise Accounts payable 9,000.00


Purchase returns and allowances 9,000.00

Payment of freight Freight in 1,000.00


Cash 1,000.00

Settlement of account to supplier Accounts payable 21,750.00


Cash 21,750.00

For transaction E:
Purchase Purchases 285,600.00
Accounts payable 285,600.00

Return of merchandise Accounts payable 24,000.00


Purchase returns and allowances 24,000.00

Page 3 of 4
Payment of freight Accounts payable 14,000.00
Cash 14,000.00

Settlement of account to supplier Accounts payable 247,600.00


Cash 239,752.00
Purchase discounts 7,848.00

Page 4 of 4

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