Question

Xanadu Company purchased merchandise on account

from Springhill Company for $8,300, terms 1/10, n/30.
Xanadu returned merchandise with an invoice amount of
$1,500 and received full credit.
a. If Xanadu Company pays the invoice within the
discount period, what is the amount of cash required for
the payment? If required, round the answer to the
nearest dollar.
b. What account is debited by Xanadu Company to
record the return?

Answer 1

Xanadu Company would need to pay $6,732 to settle the invoice within the discount period after returning merchandise worth $1,500. The account debited for the return would be Purchases Returns and Allowances.

Step-by-step explanation:

The student has asked two questions regarding a transaction made by Xanadu Company with Springhill Company:

1. If Xanadu Company pays the invoice within the discount period, what is the amount of cash required for the payment?
2. What account is debited by Xanadu Company to record the return?

To answer the first question, we must calculate the net amount after the return and then apply the discount. Xanadu returned merchandise worth $1,500, which leaves us with a balance of $6,800 ($8,300 - $1,500). The terms 1/10, n/30 indicate that Xanadu can take a 1% discount if the payment is made within 10 days. Thus, the discount amount would be 1% of $6,800, which equals $68. The adjusted amount after the discount would be $6,732 ($6,800 - $68). Therefore, Xanadu Company requires $6,732 to settle the invoice within the discount period.

For the second question, when recording the return, Xanadu Company would debit the Purchases Returns and Allowances account. This account is used to track returns and allowances for merchandise purchases on account.