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On June 10, Pharoah Company purchased $7,600 of merchandise from Cullumber Company, terms 4/10, n/30. Pharoah Company pays the freight costs of $390 on June 11. Goods totaling $500 are returned to Cullumber Company for credit on June 12. On June 19, Pharoah Company pays Cullumber Company in full, less the purchase discount. Both companies use a perpetual inventory system. Prepare separate entries for each transaction on the books of Pharoah Company.

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Answer:

1. June 10

Debit Merchandise: $7,600

Credit Payable account: $7,600

2. June 11

Debit Merchandise: $390

Credit Cash: $390

3. June 12

Debit Payable account: $500

Credit Merchandise: $500

4. June 19

Debit Payable account: $7,100

Credit Purchase discount: $284

Credit Cash: $6,816

Explanation:

1.On June 10, follow accrual concept, Pharoah must record only merchandise and payable account.

2.On June 11, freigh cost must be include Merchandise cost.

3.On June 12, when goods return, merchandise of Pharoah reduces and the payable amount to Cullumber Company reduces.

4.On June 19, Pharoah pays early enough to receive purchase discount (term 4/10, n/30 mean that 4% discount for the payment within 10 days and the full amount to be paid within 30 days). Amount discount: 4%x$7,100=$284 (because goods return $500 for credit). So Pharoah has to pay Cullumber: $7,100-$284=$6,816

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