Question

Sheridan Company uses the perpetual inventory and the gross method. On March 1, it purchased $83000 of inventory, terms 2/10, n/30. On March 3, Sheridan returned goods that cost $7200. On March 9, Sheridan paid the supplier. On March 9, Sheridan should credit
a. purchase discounts for $1516.
b. inventory for $1516.
c. purchase discounts for $1660.
d. inventory for $1660.

Answer 1

Answer:

b. inventory for $1516.

Explanation:

Term 2/10, n/30 means there is a discount of 2% is available on payment of due amount within discount period of 10 days after sale and net credit period of 30 days.

Purchase value = $83,000

Purchases return = $7,200

Amount Due = $83,000 - $7,200 = $75,800

As the $75,800 is paid within discount period, so discount will be given to customer

Discount  = $75,800 x 2% = $1,516

Payment Made = $75,800 - $1,516 = $74,284

Gross method does not record the discount value it recognise the inventory at its gross amount and discount is adjusted in the inventory account after that.