The following is a series of related transactions between Siogo Shoes, a shoe wholesaler, and Sole Mates, a chain of retail shoe stores: Feb. 9 Siogo Shoes sold Sole Mates 50 pairs of hiking boots on account, terms 1 /10, n/30. The cost of these boots to Siogo Shoes was $20 per pair, and the sales price was $30 per pair. Feb. 12 United Express charged $25 for delivering this merchandise to Sole Mates. These charges were split evenly betweenthe buyer and seller and were paid immediately in cash. Feb. 13 Sole Mates returned 10 pairs of boots to Siogo Shoes because they were the wrong size. Siogo Shoes allowed Sole Mates full credit for this return. Feb. 19 Sole Mates paid the remainder balance due to Siogo Shoes within the discount period. Both companies use a perpetual inventory system.

Instructions

a. Record this series of transactions in the general journal of Siogo Shoes. (The company records sales at gross sales price.)

b. Record this series of transactions in the general journal of Sole Mates. (The company records purchases of merchandise at net cost and uses a Transportation-in account to record transportation charges on inbound shipments.)

c. Sole Mates does not always have enough cash on hand to pay for purchases within the discount period. However, it has a line of credit with its bank, which enables Sole Mates to easily borrow money for short periods of time at an annual interest rate of 11 percent. (The bank charges interest only for the number of days until Sole Mates repays the loan.) As a matter of general policy, should Sole Mates take advantage of 1/10, n/30 cash discounts even if it must Borrow the money to do so at an annual rate of 11 percent? Explain fullyand illustrate any supporting computations.