Question

Elkins Corporation uses the perpetual inventory method. On March 1, it purchased $33,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $3,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit:a. purchase discounts for $600.b. inventory for $600.c. purchase discounts for $660.d. inventory for $660.

Answer 1

Answer:

b. inventory for $600

Explanation:

Before giving the answer, first we have to compute the amount which is shown below:

= (Purchase amount of inventory - the cost of returned goods) × discount rate

= ($33,000 - $3,000) × 2%

= $30,000 × 2%

= $600

Since the payment is made within 10 days. So, Elkins can avail of the 2% discount.

This transaction would credit the inventory for $600 as in the perpetual inventory method the amount of discount is adjusted to the inventory amount.

The journal entry is shown below:

Accounts payable A/c Dr $30,000

     To Cash A/c                                       $29,400

      To Inventory A/c                               $600

(Being the amount is paid and the difference would be credited to the cash account)