Question

Purchases Transactions: Barans Company purchased merchandise on account from Springhill Company for $13,500, terms 2/10, n/30. Barans returned merchandise with an invoice amount of $3,400 and received full credit.

a. If Barans pays within the discount period, what is the cash required?
b. What account is debited by Barans Company to record the return?

Answer 1

Barans Company requires $9,898 to settle the invoice within the discount period after returning merchandise worth $3,400. The Accounts Payable account is debited to record the merchandise return.

Step-by-step explanation:

The subject of this question pertains to accounting practices related to purchases transactions within a business context. Barans Company is involved in a merchandise transaction with Springhill Company.

a. To determine the cash required if Barans pays within the discount period, we start with the initial purchase amount of $13,500 and subtract the value of the returned merchandise ($3,400). After this return, the adjusted invoice amount is $10,100. The terms 2/10, n/30 indicate that Barans can take a 2% discount if they pay within 10 days. Calculating a 2% discount on $10,100 gives a discount of $202. Therefore, the cash required for Barans to pay within the discount period would be $10,100 - $202 = $9,898.

b. When Barans Company records the return, the account that would typically be debited is the Accounts Payable account. This debit reflects the decrease in the liability to Springhill Company for the returned merchandise.