Question

Farthington Soccer Supplies purchases merchandise from a supplier on credit, terms 1/10, n/30 for $15,800. Assume the company uses a perpetual inventory system, and records purchases using the gross method. When recording the purchase transaction in its purchases journal, Farthington would enter:

What is the correct answer?

Multiple Choice

• $15,800 in the Accounts Payable Cr. column and $15,800 in the Inventory Dr. column.

• $15,800 in the Accounts Payable Cr. column and $15,800 in the Supplies Dr. column.

• $15,800 in the Inventory Dr. column, $15,642 in the Accounts Payable Cr. column, and $158 in the Purchase Discount Cr. column.

• $15,642 in the Inventory Dr. column and $15,642 in the Accounts Payable Cr. column.

• $15,800 in the Other Accounts Dr. column and $15,800 in the Inventory Cr. column.

Answer 1

Ans:

At the time of purchase, Farthington Soccer Supplies record the purchases using gross method. So correct entry for recording the puchase should be debiting Inventory with full purchase amount and crediting account payable with the same amount. Discount will be considered at the time of payment as per payment terms.

So correct answer is Option A.

Journal Entry would be :

$15,800 in the Accounts Payable Cr. column and $15,800 in the Inventory Dr. column.

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