Journalize entries for the following related transactions of Lilly Heating & Air Company: Purchased $36,000 of merchandise from Schell Co. on account, terms 1/10, n/30. Paid the amount owed on the invoice within the discount period. Discovered that $9,000 of the merchandise purchased in (A) was defective and returned items, receiving credit. Purchased $5,000 of merchandise from Schell Co. on account, terms n/30. Received a refund from Schell Co. for return in (C) less the purchase in (D).

The Journal entries are as follows:

(a) Inventory A/c Dr. $35,640

          To Accounts payable   $35,640

(To record the purchase of inventory on account)

Workings:

Inventory:

= [$36,000 - ($36,000 × 1%)]

= $35,640

(b) Accounts payable A/c Dr. $35,640

               To cash                                  $35,640

(To record the payment made to Schell Co.)

(c) Accounts payable A/c Dr. $8,910

             To Inventory A/c                  $8,910

(To record the return of inventory purchased from Schell Co.)

Workings:

Inventory:

= [$9,000 - ($9,000 × 1%)]

= $8,910

(d) Inventory A/c Dr. $35,640

          To Accounts payable - S. co   $35,640

(To record the purchase of inventory on account)

(e) Cash A/c Dr. $3,910

        To accounts payable $3,910

(To record the receipt of refund from S co.)

Workings:

Cash = $8,910 - $5,000

         = $3,910

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