Question

Concord Industries purchased $9,100 of merchandise on February 1, 2020, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $2,900 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.Assuming that Cruise uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method.

Answer 1

When recording the purchase, return, and payment using the gross method, a net purchase price should be calculated, and the trade discount and credit terms should be considered. The journal entries for the purchase, return, and payment can be summarized as follows: Purchase journal entry: Merchandise Inventory $8,190, Accounts Payable $8,190. Return journal entry: Accounts Payable $2,900, Merchandise Inventory $2,900. Payment journal entry: Accounts Payable $5,290, Cash $5,290.

Step-by-step explanation:

When recording the purchase using the gross method, we need to account for the trade discount and credit terms. The purchase of $9,100 with a 10% trade discount would result in a net purchase price of $8,190. The terms 3/15, n/60 mean that the buyer gets a 3% discount if paid within 15 days, otherwise the full amount is due in 60 days. On February 1, the journal entry would be:

1. Merchandise Inventory 8,190
2. Accounts Payable 8,190

On February 4, when the merchandise worth $2,900 is returned, the journal entry would be:

1. Accounts Payable 2,900
2. Merchandise Inventory 2,900

Finally, when the invoice is paid on February 13, we use the gross method, which means no cash discount is taken. The journal entry would be:

1. Accounts Payable 5,290
2. Cash 5,290

Answer 2

Step-by-step explanation:

The journal entries are shown below:

a. Merchandise Inventory A/c $8,190

To Accounts payable A/c $8,190

(Being goods purchased on credit)

The computation after applying discount is shown below:

= Purchase amount - purchase amount × trade discount percentage

= $9,100 - $9,100 × 10%

= $9,100 - $910

= $8,190

b. Accounts payable A/c $2,610

To Merchandise Inventory A/c $2,610

(Being goods returned is recorded)

The computation after applying discount is shown below:

= Purchase amount - purchase amount × trade discount percentage

= $2,900 - $2,900 × 10%

= $2,900 - $290

= $2,610

c. Accounts payable A/c Dr $5,580 ($8,190 - $2,610)

To Cash A/c $5,412.60

To Merchandise Inventory A/c $167.40 ($8,190 - $2,610) × 3%

(Being due amount is paid and remaining balance is credited to the cash account)