Question

Purchases Transactions Xanadu Company purchased merchandise on account from Springhill Company for $12,600, terms 1/10, n/30. Xanadu returned merchandise with an invoice amount of $2,800 and received full credit.
a. If Xanadu Company pays the invoice within the discount period, what is the amount of cash required for the payment? If required, round the answer to the nearest dollar. $

b. What account is debited by Xanadu Company to record the return?

Answer 1

Answer:

A. The required amount of cash payment = $9,702

B.

Explanation:

Requirement A.

Given,

Purchased merchandise = $12,600

Discount terms = 1/10, n/30

It means if the company pays within 10 days, Xanadu Company will get a 1% discount. However, the company has to pay the money within 30 days.

Again, as the company returned the merchandise of $2,800. Therefore, the remaining balance is = $(12,600 - 2,800) = $9,800.

If the company pays within the discount period,

the company has to pay = $9,800 - ($9,800 x 1%)

the required amount of cash payment = $9,800 - $98 = $9,702.

Requirement B.

The journal entry to record the return -

Under the perpetual system -

Accounts payable                    Debit       $2,800

             Inventory                    Credit       $2,800

Under the periodic system -

Accounts payable                    Debit        $2,800

      Purchase Returns  and Allowances    Credit      $2,800

Therefore, in both the cases, Accounts payable of $2,800 is debited by Xanadu Company to record the purchase return.