On June 10, Tuzun Company purchased $8,000 of merchandise from Epps Company, FOB shipping point, terms 2/10, n/30. Tuzun pays the freight costs of $400 on June 11. Damaged goods totaling $300 are returned to Epps for credit on June 12. The fair value of these goods is $70. On June 19, Tuzun pays Epps Company in full, less the purchase discount. Both companies use a perpetual inventory system.

Instructions:

(a) Prepare separate entries for each transaction on the books of Tuzun Company.
(b) Prepare separate entries for each transaction for Epps Company. The merchandise purchased by Tuzun on June 10 had cost Epps $4,800.

a.  Entries for each transaction on the books of Tuzun Company

On June 10,

Debit Merchandise $8,000

Credit Accounts Payable $8,000

On June 11:

Debit Freight in $400

Credit Cash $400

On June 12:

Debit Accounts Payable $300

Credit Merchandise $300

On June 19:

Debit Accounts Payable $7,700

Credit Purchase discount $154

Credit Cash $7,546

b. Entries in Epps Company

On June 10:

Debit Account Receivable $8,000

Credit Sales $8,000

Debit Cost of goods sold $4,800

Credit Merchandise $4,800

On June 12:

Debit Sales $300

Credit Account Receivable $300

Debit Merchandise $70

Credit Cost of goods sold $70

On June 19:

Debit Cash $7,546

Debit Sales Discount $154

Credit Account Receivable $7,700

Explanation:

Credit terms of 2/10, n/30 means that 2% discount for the payment within 10 days and the full amount to be paid within 30 days.

a.  Entries for each transaction on the books of Tuzun Company

On June 10,

Debit Merchandise $8,000

Credit Accounts Payable $8,000

On June 11:

Debit Freight in $400

Credit Cash $400

On June 12:

Debit Accounts Payable $300

Credit Merchandise $300

On June 19:

Tuzun pays and takes the appropriate discount:

2% x ($8,000 - $300) = $154

Cash Epps Company receives: $7,700-$154 = $7,546

The journal entry that Tuzun make:

Debit Accounts Payable $7,700

Credit Purchase discount $154

Credit Cash $7,546

b. Entries in Epps Company

On June 10:

Debit Account Receivable $8,000

Credit Sales $8,000

Debit Cost of goods sold $4,800

Credit Merchandise $4,800

On June 12:

Debit Sales $300

Credit Account Receivable $300

Debit Merchandise $70

Credit Cost of goods sold $70

On June 19:

Debit Cash $7,546

Debit Sales Discount $154

Credit Account Receivable $7,700