Purchased Merchandise From Blue Company - April 2

Apr 2 Purchased Merchandise From Blue Company Under The Followin

Considering the described transactions involving merchandise purchases from Blue Company and Fox Corp., the core assignment is to understand and record these purchase transactions, their associated terms, discounts, returns, allowances, and payments based on the provided dates and terms.

The task involves analyzing the purchase and payment processes, taking into account credit terms such as discounts and net periods, shipping terms like FOB shipping point and FOB destination, and transactions like returns and allowances. It requires calculating discounts, recording returns and allowances, and preparing journal entries in accordance with accounting principles for purchases and related expenses.

Paper For Above instruction

The series of purchase transactions documented for April illustrate fundamental aspects of inventory and accounts payable management within accrual accounting. These transactions involve multiple considerations including credit terms, shipping arrangements, returns, allowances, and extending creditor negotiations—all crucial in recording and reporting purchase activities accurately.

On April 2, a purchase was made from Blue Company for merchandise valued at $6,600 with invoice terms of 2/15, n/60, and FOB shipping point. These terms indicate that a 2% discount is available if payment is made within 15 days, and the net amount is due within 60 days. FOB shipping point signifies that ownership and responsibility transfer to the buyer upon shipment, necessitating the buyer to recognize transportation costs as part of inventory or expense upon receipt.

Additionally, a shipping cost of $370 was paid on April 4. Because FOB shipping point applies, these costs are capitalized as part of inventory costs. The merchandise was returned on April 4, with an invoice value of $750, representing an unacceptable product. Returns under accounting standards decrease inventory and accounts payable, and are recorded at their invoice value to reflect the reduction in liability and inventory correctly.

By April 17, the company settled its obligation by paying the net amount due, considering the discount for early payment. If the purchase qualifies for the 2% discount, the calculation of the payable amount proceeds as follows: starting with the invoice price of $6,600, subtract the return of $750, resulting in a net purchase of $5,850. The 2% discount on $5,850 equals $117, leading to a final payment of $5,733 ($5,850 minus $117).

Subsequently, on April 18, the company acquired additional inventory from Fox Corp. valued at $13,650 with invoice terms of 2/10, n/30, and FOB destination. FOB destination entails that ownership transfers upon delivery, implying the company bears responsibility only once the merchandise arrives, and freight costs are borne by the seller unless agreed otherwise.

After negotiation, an allowance of $3,822 was granted on April 21, reducing the invoice price. The adjusted purchase amount, therefore, becomes $13,650 minus $3,822, totaling $9,828. On April 28, the company paid Fox Corp., applying the 2% discount available if paid within 10 days. Since payment was made after the initial 10-day period, the discount is forfeited, and the payment equals the net amount of $9,828, with no discount applicable.

This series demonstrates key purchase accounting principles: proper recognition of discounts based on payment timing, handling returns and allowances, and understanding the impact of FOB shipping point and FOB destination terms on inventory and liability recognition. For example, FOB shipping point shifts ownership responsibility to the buyer during transit, requiring the addition of shipping costs to inventory, while FOB destination delays ownership transfer until delivery, affecting when expenses are recognized in the books.

Furthermore, the practical application of discounts, returns, and allowances ensures that financial statements accurately reflect the company's liabilities and inventory holdings. Early payment discounts encourage prompt settlement, while returns and allowances mitigate overstatement of inventory or expenses that do not meet quality standards.

From a broader perspective, these transactions exemplify the importance of aligning accounting practices with contractual terms to ensure accurate financial reporting. Proper documentation and recordkeeping are essential in applying discounts, recognizing returns, and making payments, all of which influence the company's cost of goods sold, inventory valuation, and accounts payable balances. Ethical and systematic handling of such transactions also supports audit readiness and internal control compliance.

In sum, understanding and applying these purchase transactions' details—terms, discounts, returns, allowances, and FOB terms—are fundamental skills in accounting. Accurate journal entries must reflect these elements, ensuring compliance with Generally Accepted Accounting Principles (GAAP) and providing reliable financial information for decision-making and reporting purposes.

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