In: Accounting
E8-8.
(Purchases Recorded, Gross Method)
(LO 2) Cruise Industries purchased $10,800 of merchandise on February 1, 2017, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $2,500 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.
Instructions
(a) Assuming that Cruise uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method.
(b) Assuming that Cruise uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method.
(c) At what amount would the purchase on February 1 be recorded if the net method were used?
Answer :-
a)
Assuming that Cruise uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method
Date | Account title and explanation | Debit | Credit |
Feb.01 | Inventory ($10,800-$1,080) | $9,720 | |
Accounts Paybale | $9,720 | ||
Feb.04 | Accouts payable ($2,500-250) | $2,250 | |
Inventory | $2,250 | ||
Feb.13 | Accounts payable | $7,470 | |
Cash (5400-162) | $ 7,246 | ||
Inventory ($7,470*3%) | $ 224 |
b)
Assuming that Cruise uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method
Date | Account title and explanation | Debit | Credit |
Feb.01 | Purchase | $9,720 | |
Accounts Payable | $9,720 | ||
Feb.04 | Accounts payable ($2,500-250 | $2,250 | |
Purchase return | $2,250 | ||
Feb.13 | Accounts payable | $7,470 | |
Cash (5400-162) | $7,246 | ||
Cash discount (5400*3%) | $224 |
c)
The amount would be recorded using the net method:
Under net method, purchase on February 1 would be recorded after taking 3% discount into consideration.
Purchases uder net method on February 1 = $10,800 x 90% x 97% = $9,428.