Question

On July 1, Darin Company sold inventory costing $5,000 to Dee Company for $6,000, terms 3/10, n/30. Both companies use the perpetual inventory system. Dee Company pays the invoice on July 8 and takes the appropriate discount. What journal entry will be recorded by Dee Company on July 8?

A) Debit Accounts Payable and credit Cash for $6,000
B) Debit Accounts Payable for $5,820, credit Inventory for $180, and credit Cash for $6,000
C) Debit Accounts Payable for $6,000, credit Cash for $5,820, and credit Inventory for $180
D) Debit Cost of Goods Sold and credit Cash for $5,000

Answer 1

Dee Company will debit Accounts Payable for $6,000, credit Cash for $5,820, and credit Inventory for $180 to account for the discount received on the invoice payment within the discount period.

Step-by-step explanation:

On July 8, Dee Company paid the invoice within the discount period, which allows them to take a 3% discount on the purchase price of $6,000 from Darin Company. To determine the discount amount, we calculate 3% of $6,000, which is $180. Therefore, Dee Company will pay $6,000 - $180 = $5,820.

The correct journal entry to record the payment by Dee Company on July 8 will be to debit Accounts Payable for the full invoice amount of $6,000, then credit Cash for the amount paid of $5,820, and credit Inventory for the discount taken of $180. This will reduce both the liability (Accounts Payable) and the asset (Inventory) by the appropriate amounts, while also reflecting the cash paid out.

The correct journal entry is therefore:

• Debit Accounts Payable $6,000
• Credit Cash $5,820
• Credit Inventory $180