On July 5, Horwath Company purchased on account a shipment of sheet steel from Northwest Steel, Co. The invoice price was $195,000, F.O.B. shipping point. Shipping cost from the steel mill to Horwath’s plant was $10,000, which was paid directly to the shipping company. When inspecting the shipment, the Horwath receiving clerk found several flaws in the steel. The clerk informed northwest’s sales representative of the flaws, and after some negotiation, Northwest granted an allowance of $9,000.
To encourage prompt payment, Northwest grants a 2% cash discount to customers who pay their accounts within 30 days of billing. Horwath paid the proper amount on August 1.
1. Compute the total cost of the sheet steel acquired.
2. Prepare the journal entries for the transaction assuming a periodic inventory system. Omit explanations.