On December 27, 2017, Mint Company placed an order to purchase merchandise on account from a seller,
Question:
On December 27, 2017, Mint Company placed an order to purchase merchandise on account from a seller, Lemon, Inc. Lemon’s listed catalog price for the merchandise is $13,000. Lemon’s historical cost for these items is $4,000. Mint has been a customer of Lemon’s for years and was able to negotiate these terms:
(i) a 7% trade discount
(ii) payment terms of 2/10, n/30. The goods were shipped by Lemon FOB shipping point on December 30, 2017 and arrived at Mint’s facility on January 5, 2018. At the time of shipment, Lemon paid $700 in shipping costs. On January 6, Mint returned $2,000 worth of merchandise to Lemon, which had an original cost to Lemon of $615. Mint paid Lemon in full on January 7.
Show all of your work and calculations, and make sure you answer all parts of the question.
Required:
1. Prepare the seller’s (Lemon) entries for the sale, return, and collection of payment in the following format:
Date: MM/DD/YY
Dr. Account………...XX
Cr. Account…………...XX
2. Prepare the buyer’s (Mint) entries for the purchase, return, and payment to Lemon in the following format:
Date: MM/DD/YY
Dr. Account………...XX
Cr. Account…………...XX
3. Assume all facts are the same, except the shipping terms are FOB destination. Prepare the seller’s (Lemon) entry for the sale in the following format:
Date: MM/DD/YY
Dr. Account………...XX
Cr. Account…………...XX
4. Assume all facts are the same, except the shipping terms are FOB destination. Prepare the buyer’s (Mint) entry for the sale in the following format:
Date: MM/DD/YY
Dr. Account………...XX
Cr. Account…………...XX
5. Explain the difference between a purchase discount and a trade discount.
Financial and Managerial Accounting
ISBN: 978-1285866307
13th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac