Question

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply).

Credit Purchase Discounts $20

Credit Cash $980

Debit Accounts Payable $1,000

Credit Cash $1,000

Debit Merchandise Inventory $20

Credit Merchandise Inventory $20

Credit Accounts Payable $1,000

Answer 1

The correct journal entry to record the payment on November 21, using the perpetual inventory system, is to debit Accounts Payable, credit Purchase Discounts, and credit Cash.

Step-by-step explanation:

The correct journal entry to record the payment on November 21, using the perpetual inventory system, is as follows:

1. Debit Accounts Payable $1,000
2. Credit Purchase Discounts $20
3. Credit Cash $980

The first entry, debit to Accounts Payable and credit to Purchase Discounts, reflects the reduction in the liability of the company due to the prompt payment discount.

The second entry, credit to Cash, reflects the actual payment made by the company.

Answer 2

Debit Credit

Accounts payable $1,000

Purchase Discounts $20

(2%*1,000)

Cash $980

Step-by-step explanation:

Since the discount of 2% has been availed by the LOL Music Store because the payment has been made to the supplier within the five days and following journal entry shall be made by the LOL Music store in its accounts on November 21:

Debit Credit

Accounts payable $1,000

Purchase Discounts $20

(2%*1,000)

Cash $980