Question

A company that uses the net method of recording purchases and a perpetual inventory system purchased $3,200 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $900 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:

a: Debit Merchandise Inventory $2,300; credit Cash $2,300.

b:Debit Cash $2,300; credit Accounts Payable $2,300.

c: Debit Accounts Payable $2,300; credit Merchandise Inventory $46; credit Cash $2,254.

d: Debit Accounts Payable $3,200; credit Cash $3,200.

e: Debit Accounts Payable $2,254; debit Discounts Lost $46; credit Cash $2,300.

Answer 1

e.Debit accounts payable $2,254 debt discounts lost $46, credit cash.

this is because on july 7 $900 worth goods are returned, since net payments method is used the accounts payable balance will be:

($3200 - $900)* (100% - 2% discount)

=>$2300 *2%

=>$2254

discount will be $2300 *2%=>$46.

now since the payment is not paid within 10 days ....(going by the terms 2/10 , net 30)

the $46 discount will be written back on July 28 by debiting discounts lost $46.

total cash to be paid will be accounts payable balance + discount written back

=>$2254+ $46

=>$2300....(cash account is credited by this amount).