Question

A company purchased $1800 of merchandise on July 5 with terms 2/10, n/30. On July 7 it returned $200 worth of merchandise. On July 8 it paid the full amount due. Assuming the company uses the gross method to record purchases the journal entry to record the cash paid on July 8 is:

Debit Accounts Payable $1568; Debit Merchandise Inventory $32; Credit Cash $1600

Debit Accounts Payable $1600; Credit Cash $1600

Debit Accounts Payable $1568; Credit Cash $1568

Debit Accounts Payable $1600; Credit Merchandise Inventory $32; Credit Cash $1568 (chosen answer)

Debit Accounts Payable $1800; Credit Merchandise Inventory $36; Credit Cash $17

Answer 1

Correct answer--------Debit Accounts Payable $1600; Credit Merchandise Inventory $32; Credit Cash $1568.

The correct answer is already chosen so i will show that working for the answer.

Original invoice amount	$ 1,800.00
Less: Credit received for damaged goods	$     200.00
Gross amount payable (1800-200)	$ 1,600.00
Less: Discount availed (1600 x 2%)	$        32.00
Net payable within discount period (1600-32)	$ 1,568.00

.

Merchandise inventory is credited for $32 (relating to early payment discount) because the discount allowed will reduce the cost of inventory and hence inventory balance is updated by a credit.

Purchase discount would have been credited for $32 if Periodic inventory system is used.