Santa Fe Retalling purchased merchandise from Mesa Wholesalers with credit terms of $$ 2 / 10, n / 60 $$ and an invoice price of $$ \$ 27,900 $$ The merchandise had cost Mesa $$ \$ 19,028 $$ Assume that both buyer and seller use a periodic inventory system and the gross method. 1. Prepare entries that the buyer records for (a) the purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period 2. Prepare entries that the seller records for (a) the sale, (b) cash collection within the discount period, and (c) cash collection after the discount period. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare entries that the buver records for (a) the purchase, (b) cash payment within the discount period, and (c) cash payment ateer the discount period. Journal entry worksheet

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**Buyer’s Journal Entries (Periodic System, Gross Method)**

**a) When the merchandise is purchased**  
$$
\begin{array}{rcl}
\text{Debit: Purchases} & \$27,900 & \
\text{Credit: Accounts Payable} & & \$27,900 \
\end{array}
$$

**b) When cash is paid within the discount period**  
The discount is $$2\%$$ of $$ \$27,900 $$, which equals  
$$
0.02 \times 27,900 = \$558.
$$  
Thus, the amount of cash paid is  
$$
27,900 - 558 = \$27,342.
$$
$$
\begin{array}{rcl}
\text{Debit: Accounts Payable} & \$27,900 & \
\text{Credit: Cash} & & \$27,342 \
\text{Credit: Purchase Discounts} & & \$558 \
\end{array}
$$

**c) When cash is paid after the discount period**  
No discount is earned, so the full invoice amount is paid:
$$
\begin{array}{rcl}
\text{Debit: Accounts Payable} & \$27,900 & \
\text{Credit: Cash} & & \$27,900 \
\end{array}
$$

---

**Seller’s Journal Entries (Periodic System, Gross Method)**

**a) When the merchandise is sold**  
$$
\begin{array}{rcl}
\text{Debit: Accounts Receivable} & \$27,900 & \
\text{Credit: Sales Revenue} & & \$27,900 \
\end{array}
$$
*Note:* In a periodic inventory system, the cost of goods sold is determined at the end of the period and is not recorded at the time of sale.

**b) When cash is collected within the discount period**  
Since the buyer takes the discount, the cash received is $$ \$27,900 - \$558 = \$27,342 $$ and a discount of $$ \$558 $$ is allowed:
$$
\begin{array}{rcl}
\text{Debit: Cash} & \$27,342 & \
\text{Debit: Sales Discounts} & \$558 & \
\text{Credit: Accounts Receivable} & & \$27,900 \
\end{array}
$$

**c) When cash is collected after the discount period**  
No discount is given, so the full amount is collected:
$$
\begin{array}{rcl}
\text{Debit: Cash} & \$27,900 & \
\text{Credit: Accounts Receivable} & & \$27,900 \
\end{array}
$$
**Buyer’s Journal Entries:** 1. **Purchase:** $$ \text{Debit: Purchases} \quad \$27,900 \ \text{Credit: Accounts Payable} \quad \$27,900 $$ 2. **Payment Within Discount Period:** $$ \text{Debit: Accounts Payable} \quad \$27,900 \ \text{Credit: Cash} \quad \$27,342 \ \text{Credit: Purchase Discounts} \quad \$558 $$ 3. **Payment After Discount Period:** $$ \text{Debit: Accounts Payable} \quad \$27,900 \ \text{Credit: Cash} \quad \$27,900 $$ **Seller’s Journal Entries:** 1. **Sale:** $$ \text{Debit: Accounts Receivable} \quad \$27,900 \ \text{Credit: Sales Revenue} \quad \$27,900 $$ 2. **Collection Within Discount Period:** $$ \text{Debit: Cash} \quad \$27,342 \ \text{Debit: Sales Discounts} \quad \$558 \ \text{Credit: Accounts Receivable} \quad \$27,900 $$ 3. **Collection After Discount Period:** $$ \text{Debit: Cash} \quad \$27,900 \ \text{Credit: Accounts Receivable} \quad \$27,900 $$

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