The following transactions occurred in April and May. Both companies use a perpetual inventory system.
Apr. 5 Olaf Company purchased merchandise from DeVito Company for $12,000, terms 2/10, n/30, FOB shipping point. DeVito had paid $8,500 for the merchandise.
6 The correct company paid freight costs of $300.
8 Olaf Company returned damaged merchandise to DeVito Company and was given a purchase allowance of $1,800. DeVito determined the merchandise could not be repaired and sent it to the recyclers. The merchandise had cost DeVito $1,275.
May 4 Olaf paid the amount due to DeVito Company in full.
Instructions
(a) Prepare the journal entries to record the above transactions for Olaf Company.
(b) Prepare the journal entries to record the above transactions for DeVito Company.
(c) Calculate the gross profit earned by DeVito on these transactions.