Question

On July 1, Corrao Company purchased

$1,700

of inventory on account with credit terms of

3/10,

net 30. Corrao Company uses the perpetual inventory system. On July 5, Corrao Company paid the amount due. What journal entry did they prepare on July 5?

A.debit Purchase Discount for

$51,

debit Accounts Payable for

$1,598

and credit Cash for$1,649

B.debit Accounts Payable for

$1,649

and credit Cash for $1,649

C.debit Accounts Payable for

$1,700,

credit Inventory for

$51

and credit Cash for $1,649

D.debit Accounts Receivable for

$ 1,700

and credit Cash for $ 1, 700

Answer 1

B. debit Accounts Payable for $1,649

and credit Cash for $1,649

Explanation:

Under the given terms, Corrao Company will get a discount of 3% if payment is made in 10 days, else the credit period in any case is 30 days.

Carrao company has made the purchase on July 01, and made the payment on JUly 05 itself (i.e. within 10 days). So, it is eligible for 3% cash discount.

Discount amount = $ 1,700 * 3% = $ 51

When payment is made of $ 1,649 (i.e. $ 1,700 less $ 51 discount), cash will be credited as cash is reduced. Accounts payable will be debited as accounts payable are reduced.