Question

On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Johnson uses the periodic inventory system of accounting for purchases. Johnson pays the invoice on September 18, and takes the appropriate discount
The journal entry that Johnson makes on September 18 is


(A) 5,684 Purchases, Cash 5,684

(B) 4,000 Accounts payable, Merchandise inventory 80, Cash 3,920

(C) 5,800 Accounts payable, Purchases discounts 116, Cash 5,684

(D) 5,684 Accounts payable, Cash 5,684

(E) 5,684 Cash, 116 Purchases discounts, Accounts payable 5,800

Answer 1

Answer:

(C) Accounts payable $5,800 ,

Purchases discounts $116,

Cash                            $5,684

Explanation:

• The first entry to the accounting system at the moment of the purchases, the company record the invoice by the full amount without discount.    

Purchases               $5,800  Debit  

Accounts Payable  $5,800  Credit  

 

• The condition of payment it's 2/10, n/30, which means that if the payment it's made before the first 10 days of the invoice date the discount applied.    

As the invoice was issued on September 12 and the payment was made on September 18 the entry is as follow:    

Accounts Payable  $5,800  Debit  

Purchases Discounts  $116   Credit  

Cash                         $5,684  Credit