Question

Coronado Industries purchased $12,700 of merchandise on February 1, 2020, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $2,400 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.
a) Assuming that Cruise uses the perpetual method for recording merchandise transactions, record
the purchase, return, and payment using the gross method.
(b) Assuming that Cruise uses the periodic method for recording merchandise transactions, record the
purchase, return, and payment using the gross method.
(c) At what amount would the purchase on February 1 be recorded if the net method were used?

Answer 1

Answer: SEE EXPLANATION

Explanation:

A.) Using perpetual inventory method

February 1:

Inventory = ($12700 - (0.1 ×12,700)) = $11,430

Account Payable = $11,430

February 4:

Accounts payable ($2400 - (0.1×2400)) = $2160

Inventory = $2,160

February 13:

Accounts payable($11,430 - $2,160) = $9,270

Inventory = 0.03 × $9,270 = $278.1

Cash = $(9270 - 278.1) = $8,991.90

B.) Using periodic inventory ;

February 1:

Purchases =($12700 - (0.1×12700)) = $11,430

Accounts payable = $11,430

February 4:

Accounts payable = ($2400 - (0.1×2400)) = $2,160

Purchase returns and allowances = $2,160

February 13:

Accounts payable ($11,430 - $2160) = $9,270

Purchase discount = 0.03 × 9270 = $278.1

C.) Using net price:

Purchase price = $12,700

Trade discount=(0. 1 × 12700) = (1270)

Price which discount is based = $11,430

Cash discount = 0.03 × 11,430 = $342.9

Net price = $11,087.01

February 1:

Inventory = $11,087.01

Accounts payable = $11,087.01

February 13:

Accounts payable $(11,430 - 2,160)

$11,087.01

February 28:

Accounts payable $11,430

Cash $11,430

February 28:

Purchase discount lost $342.99