Question

A company purchased $2,900 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $750 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

Answer 1

Answer:

The journal entry to record payment on 12th July is shown below:

Dr Accounts payable   $2150

Cr Cash                                   $2,107

Cr discount received                 $43

Explanation:

The purchase of merchandise of $2900 on July 5 gives rise to the below journal entries

Dr Inventory       $2,900

Cr Accounts payable      $2,900

However, the return of goods worth $750 two days after implies that the value of inventory and accounts payable have reduced by $750 each

As a result, amount being owed is now $2150($2900-$750).

Besides, the payment on July 12 was within the discount period,hence the amount paid is the $2150 outstanding less 2% discount,which gives to payment of $2,107  and discount of $43