Question

On July 22, a company that uses the perpetual inventory system purchased merchandise inventory at a cost of $5,250 with credit terms 2/10, net 30. If the company pays for the purchase on August 1, what would be the appropriate journal entry?A.Merchandise Inventory 5,250Accounts Payable 5,250B.Accounts Payable 5,250Merchandise Inventory 5,250C.Purchase Discount 5,145Accounts Payable 5,145D. Accounts Payable 5,145Cash 5,145E. Accounts Payable 5,250Merchandise Inventory 105Cash 5,145

Answer 1

Answer:

The correct answer is option D

Explanation:

The reason is that the inventory purchases are record at the cost not at the cost less discount value.

When the company gets the settlement discount it must be accounted for as decrease in purchases price not in quantity and must be credited with the discount received against the accounts payable.

Debit  Accounts Payable 5,250

Credit        Merchandise Inventory 105

Credit                                        Cash 5,145