Question

Meteor Co. purchased merchandise on March 4, 2021, at a price of $31,000, subject to credit terms of 3/10, n/30. Meteor uses the net method for recording purchases and uses a periodic inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. & 3. Prepare the journal entries to record the appropriate payment if the entire invoice is paid on March 11, 2021 and April 2, 2021.

Answer 1

Answer:

1.

Dr Purchases 30,070

Cr Accounts payable 30,070

2.

Dr Accounts payable 30,070

Cr Cash 30,070

3.

Dr Accounts payable 30,070

Dr Interest expense 930

Cr Cash 30,000

Explanation:

Meteor Co. Journal entry

1.

Dr Purchases 30,070

($31,000 x .97)

Cr Accounts payable 30,070

2.

Dr Accounts payable 30,070

Cr Cash 30,070

3.

Dr Accounts payable 30,070

Dr Interest expense 930

(31,000-30,070)

Cr Cash 30,000

Since the company purchased merchandise at a price of $31,000 in which it was been subject to credit terms of 3/10 that means 100%-3% credit term will give us 97% credit term ×$31,000 which enabled us to arrived at 30,070.