Question

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1. Based on this information, which of the following shows how the recognition of the cash discount will affect the Company’s financial statements. rev: 11_03_2016_QC_CS-68627 Picture Picture Picture Picture

Answer 1

The discount will not affect the net income as no gain is recognize nor expense.

the cash flow statemetn will decrease by 3,960 which is the cash used.

the balance sheet after the series of trasnactions, will show inventory for 3,960

Cash would have decrease by 3,960

No change on equity.

Step-by-step explanation:

inventory 5,000 debit

accounts payable 5,000 credit

account payable 1,000 debit

inventory 1,000 credit

Account payable 4,000 debit

Inventory 40 credit

Cash 3,960 credit