Question

Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $20,600 was made on credit, 3/10, n/30. The journal entry to record this purchase is:a. Merchandise Inventory 20,600 Accounts Payable 20,600b. Accounts Payable 20,600 Merchandise Inventory 20,600c. Purchases 20,600 Accounts Payable 20,600d. Purchases 19,982 Accounts Payable 19,982e. Merchandise Inventory 19,982 Accounts Payable 19,982

Answer 1

Answer:

e. Merchandise Inventory Debit 19,982

           Accounts Payable Credit                  19,982

Explanation:

In a perpetual inventory system, the inventory account is used to record purchases and cost of goods sold. Inventory counts are conducted on periodic basis and the inventory quantities  are matched with inventory records and any differences are adjusted.

Since Morgan Inc. also uses the net method to record purchases, any discounts allowed are considered to have been received.

In this question, the terms are 3/10, n/30 which means that a 3 % discount is allowed on payment within 10 days and if not then the payment has to be done within 30 days.

Considering a 3 % discount on the purchase value of $ 20,600, the entry to be recorded shall be at a value of $ 19,608 (20,600-618)