Question

Splish Industries purchased $11,300 of merchandise on February 1, 2020, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $2,600 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.
Required:
1. Assuming that Splish uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method.
2. Assuming that Splish uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method.

Answer 1

Answer:

Inventory  10170(1) debit

Accounts Payable  10170 credit

--to record purchase--  

Accounts Payable  2340(2) debit

Inventory  2340 credit

--to record returned goods--  

Accounts Payable  7830(3) debit

Inventory  234.9 debit

Cash  7595.1 credit

--to record payment within discount--  

__ periodic inventory__

Purchases                10170(1) debit

Accounts Payable  10170 credit

--to record purchase--  

Accounts Payable  2340(2) debit

Purchase Return 2340 credit

--to record returned goods--  

Accounts Payable     7830(3) debit

Purchase Discount   234.9 debit

Cash                  7595.1 credit

--to record payment within discount--

Explanation:

(1) we discount 10% of the list price

11,300 x (1 - 0.1) = 10,170

(2) as is a gross price we discount the trade-in discount

2,600 x (1 - 0.1) = 2,340

(3) we solve for the balance of the account: 10,170 - 2,340 = 7,830

Now, the inventory will be lowered as we pay within discount period:

7,830 x 0.03 = 234.9

Cash 7,830 - 234.9 = 7,595.1