Question

Eight Company reported 1,500 units of inventory at a total cost of $15,000 as of November 1, 2018. The following transactions occurred during the month.

November 14: The company purchased 2,000 units of merchandise on account for $22,000 with terms 2/10, n30. The goods were shipped f.o.b. destination and arrived at the company's warehouse on November 18. The company paid $500 cash to a third party carrier for freight.

November 18: The company received the inventory purchased on November 14.

November 19: The company returned 300 units of merchandise purchased on November 14 for credit.

November 20: The company sold 1,400 units of merchandise on account for $28,000 with terms 2/10, n30. The goods shipped f.o.b. shipping point and arrived at the customer's warehouse on November 24.

November 22: The company paid for the merchandise purchased on November 14.

November 24: The customer confirmed receipt of the merchandise shipped on November 20.

Assume that Eight Company uses the periodic method and last-in, first-out (LIFO) cost flow assumption to account for inventory, the gross method to account for purchase discounts, and the gross method to account for sales discounts.

The journal entry on November 19 would include which of the following?

A debit to accounts payable for $3,324

A debit to accounts payable for $3,300

A credit to inventory for $3,300

A credit to purchases for $3,300

Answer 1

As the company uses the periodic method and gross method to account for purchase discounts, Accounts payable account will be debited (as the goods were purchased on credit) and purchases returns account will be credited with the gross amount of purchase cost for 300 units purchased on November 14.

Journal Entry on November 19 will be:- (Amounts in $)

Accounts Payable [($22,000/2,000 units)*300 units] 3,300

Purchase Returns 3,300

Therefore the correct option is B) A debit to accounts payable for $3,300.