Question

ABC Co purchases merchandise inventory from XYZ Co for the purpose of resale, on account. The merchandise costs $10,000. The terms of the sale are FOB Destination, 2/10,n30. Shipping costs are $50 and paid in cash to the shipping company. The journal entry to record the purchase on ABCC 's books would include:

A. A credit to Account payable $10.000.
B. A debit to shipping cost of $50 and a credit to cash of $50
C. A debit to Merchandise Inventory of $10,050.
D. A credit to cash of $10,000,

Answer 1

The correct journal entries for the purchase of inventory on account with additional shipping costs involve debiting Merchandise Inventory $10,000 and Shipping Expense $50, and crediting Accounts Payable $10,000 and Cash $50.

Step-by-step explanation:

The student is asking about the correct journal entry for a merchandise inventory purchase on account with additional shipping costs. ABC Co. purchases inventory from XYZ Co. for $10,000 on terms FOB Destination, 2/10, n30, so the ownership of the inventory transfers once it arrives at the destination. Additionally, ABC Co. pays $50 shipping costs in cash.

Considering the terms of the purchase and adhering to the principles of accounting, the correct journal entries for ABC Co would be:

• Debit Merchandise Inventory $10,000
• Credit Accounts Payable $10,000
• Debit Shipping Expense $50
• Credit Cash $50

These entries reflect the acquisition of inventory and payment of shipping costs.