On June 10, Wildhorse Company purchased $7,000 of merchandise from Sandhill Company, terms 3/10, n/30. Wildhorse Company pays the freight costs of $430 on June 11. Goods totaling $300 are returned to Sandhill Company for credit on June 12. On June 19, Wildhorse Company pays Sandhill Company in full, less the purchase discount. Both companies use a perpetual inventory system. Required:

a. Prepare separate entries for each transaction on the books of Wildhorse Company.

b. Prepare separate entries for each transaction for Sandhill Company. The merchandise purchased by Wildhorse Company on June 10 cost Sandhill Company $2,180, and the goods returned cost Sandhill Company $200.

In the books of Wildhorse Company

a. Journal Entries:

June 10:

Debit Inventory $7,000

Credit Accounts Payable (Sandhill Company) $7,000

To record the purchase of merchandise, terms 3/10, n/30.

June 11:

Debit Freight-in $430

Credit Cash $430

To record the payment of freight costs.

June 12:

Debit Accounts payable (Sandhill Company) $300

Credit Inventory $300

To record the return of goods for credit.

June 19:

Debit Accounts payable (Sandhill Company) $6,300

Credit Cash $6,099

Credit Cash Discount $201

To record the payment on account.

b. In the books of Sandhill Company

June 10:

Debit Accounts Receivable (Sandhill Company) $7,000

Credit Sales Revenue $7,000

To record the sale of merchandise, terms 3/10, n/30.

Debit Cost of Goods Sold $2,180

Credit Inventory $2,180

To record the cost of goods sold.

June 12:

Debit Sales Returns $300

Credit Accounts receivable (Sandhill Company) $300

To record the return of goods for credit.

Debit Inventory $200

Credit Cost of goods sold $200

To record the cost of goods returned.

June 19:

Debit Cash $6,099

Debit Cash Discount $201

Credit Accounts receivable (Sandhill Company) $6,300

To record the receipt of cash on account.

Explanation:

The entries in the books of Sandhill Company and Wildhorse Company are opposite in some respects.  However, not every transaction affects the two companies equally.

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