Question

Birmingham Corporation uses the perpetual inventory method. On May 1, it purchased $22,000 of inventory, terms 2/10, n/30. On May 3, Birmingham returned goods that cost $2,000. On May 9, Birmingham paid the supplier. On May 9, the company should credit

a.purchase discounts for $400.
b.inventory for $440.
c.inventory for $400.
d.purchase discounts for $440.

Answer 1

Birmingham Corporation uses the perpetual inventory method and should credit the purchase discounts account for $440.

Step-by-step explanation:

Based on the information provided, Birmingham Corporation uses the perpetual inventory method. The perpetual inventory method is an accounting system in which the inventory balance is continuously updated as purchases and sales are made. In this method, purchases are recorded in the inventory account, and any returns or discounts are credited back to the account.

On May 1, Birmingham Corporation purchased $22,000 of inventory with terms 2/10, n/30. This means they receive a 2% discount if they pay within 10 days, and the full payment is due within 30 days. On May 3, they returned goods that cost $2,000, reducing their overall inventory value.

On May 9, Birmingham Corporation made the payment to the supplier. Since they are eligible for the purchase discount, they should credit the purchase discounts account for $440. The purchase discounts account is used to record the discounts received for early payment of purchases.