Question

A company purchased $2,800 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $700 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

Answer 1

The journal entry to record the payment on July 12, considering the return and discount available, would be a debit to Accounts Payable for $2,100, a credit to Cash for $2,037, and a credit to Merchandise Inventory for $63.

Step-by-step explanation:

The student is dealing with a perpetual inventory system and the gross method of recording purchases in an accounting scenario. Given that the payment was within the discount period, we can calculate the discount and then determine the payment amount. The initial purchase was $2,800, and after returning items worth $700, the adjusted amount is $2,100. The discount is 3% of $2,100, which is $63. Therefore, the company would pay the reduced amount due to the discount, which is $2,100 - $63 = $2,037.

The journal entry on July 12 would be:

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• Debit Accounts Payable $2,100 (to record the payment of the net purchase, after returns)
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• Credit Cash $2,037 (to reflect the cash payment made after the discount)
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• Credit Merchandise Inventory $63 (to record the discount taken)