Question

Hirsch Company buys inventory for $10,000 on terms of 1/10, n/30. It pays within the discount period.

	Required:
1.	Prepare the journal entries to record the purchase and the payment under both the (a) gross price and (b) net price methods. Assume that Hirsch uses a periodic inventory system.
2.	Prepare the journal entries to record the purchase and payment under both the (a) gross price and the (b) net price methods. Assume that Hirsch uses a perpetual inventory system.

Answer 1

Answer
	Journal Entries
	Solution 1a:	(Periodic - Gross price method)
	Event	Particulars	Debit	Credit
	1	Inventory	$      10,000
		To Accounts payable		$     10,000
		(To record purchases)
	2	Accounts payable	$      10,000
		To Cash ($10,000*99%)		$       9,900
		To Discount on Purchase		$          100
		(To record amount paid)
	Solution 1b:	(Periodic - Net price method)
	Event	Particulars	Debit	Credit
	1	Inventory ($10,000*99%)	$        9,900
		To Accounts payable		$       9,900
		(To record purchases)
	2	Accounts payable	$        9,900
		To Cash		$       9,900
		(To record amount paid)
	Solution 2a:	(Perpetual - Gross price method)
	Event	Particulars	Debit	Credit
	1	Inventory	$      10,000
		To Accounts payable		$     10,000
		(To record purchases)
	2	Accounts payable	$      10,000
		To Cash ($10,000*99%)		$       9,900
		To Inventory		$          100
		(To record amount paid)
	Solution 2b:	(Perpetual - Net price method)
	Event	Particulars	Debit	Credit
	1	Inventory	$        9,900
		To Accounts payable		$       9,900
		(To record purchases)
	2	Accounts payable	$        9,900
		To Cash		$       9,900
		(To record amount paid)

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