On June 10, Concord Corporation purchased $8,050 of merchandise on account from Sarasota Company, FOB shipping point, terms 1/10, n/30. Concord pays the freight costs of $510 on June 11. Damaged goods totaling $450 are returned to Sarasota for credit on June 12. The fair value of these goods is $80. On June 19, Concord pays Sarasota Company in full, less the purchase discount. Both companies use a perpetual inventory system.

Solution:

The journal entries are as follows in the books of Concord Corporation

On June 10

Merchandise inventory A/c            Dr    $8,050

             To Account payable A/c                            $8,050

(Being the inventory is purchased on account)                

On June 11

Merchandise inventory A/c         Dr     $510

            To Cash A/c                                               $510

(Being freight is paid by cash)

On June 12

Accounts payable A/c                 Dr       $450

   To Merchandise Inventory A/c                            $450

(Being goods returned is recorded)

On June 19

Accounts payable A/c               Dr     $7,600 ($8,050 - $450)

   To Cash A/c                                                          $7,524 ($7,600 × 1%)

   To Merchandise Inventory A/c                               $76

(Being payment is recorded)

month 1 start amount =$3287.90 interest=(3287.90x0.0145/12)3.97 total to pay=$3291.81 paid =$1200 balance =$2,091.87

month 2 starting amount= $2,091.87 interest =$25.28 total to pay =$2117.15 paid =$1200 balance $917.15

month 3 starting amount =$917.15 interest =$11.08 total to pay =$928.23 paid =$928.23 balance =$0 total to pay 1200+1200+928.23 = $3328.23 it will take 3 months to pay a total of $3328.23

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