Question

On June​ 1, Addison Company purchased $ 10,000 of inventory on account from Garrison Company. Garrison offers a 4​% discount if payment is received within 15 days. Addison records the purchase using the gross method and the perpetual inventory system. The journal entry on June 1 by Addison Company includes​:

a. a debit to Inventory for $9,600
b. a credit to Cash for $10,000
c. a debit to Inventory for $10,000
d. a credit to Accounts Payable for $9,600

Answer 1

c. a debit to Inventory for $10,000

Step-by-step explanation:

Whenever goods are purchased on a discount to be received on payment basis, the inventory is first recorded at cost.

Also as per the general rule, discount is a kind of income, and incomes are recorded only when earned, therefore, the cost of inventory shall be reduced by 4% only when the payment is made, therefore the inventory on the date of purchase shall be recorded at $10,000 only and not for $9,600.

Thus, correct option is c