Transactions follow for Leeland Company during October and November of the current year. Leeland uses a perpetual inventory system.
Oct. 2 Purchased merchandise on account from Gregory Company at a cost of $35,000, terms 2/10, n/30, FOB destination.
4 The correct company paid freight charges of $900 to Rail Company for shipping the merchandise purchased on October 2.
5 Returned damaged goods having a gross invoice cost of $6,000 to Gregory Company. Received a credit for this.
11 Paid Gregory Company the balance owing for the October 2 purchase.
17 Sold the remaining merchandise purchased from Gregory Company to Kurji Company for $62,500, terms 2/10, n/30, FOB shipping point.
18 The correct company paid Intermodal Co. $800 freight costs for the October 17 sale.
19 Issued Kurji Company a sales allowance of $2,500 because some of the goods did not meet Kurji's exact specifications.
27 Received the balance owing from Kurji Company for the October 17 sale.
Nov. 1 Purchased merchandise on account from Romeo Company at a cost of $60,000, terms 1/15, n/30, FOB shipping point.
2 The correct company paid freight charges of $4,000.
5 Sold the merchandise purchased from Romeo Company to Bear Company for $110,500, terms 2/10, n/30, FOB destination.
6 The correct company paid freight charges of $2,600.
7 Issued Bear Company a credit of $7,000 for returned goods. These goods had cost Leeland $4,050 and were returned to inventory.
29 Received a cheque from Bear Company for the balance owing on the November 5 sale.
30 Paid Romeo Company the amount owing on the November 1 purchase.
Instructions
Prepare journal entries to record the above transactions for Leeland Company.
Taking It Further
Explain why companies should always take advantage of purchase discounts even if they have to borrow from the bank. Refer to the two purchases made by Leeland Company in your answer.