Question

Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time.

Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method. August 10 Purchased merchandise on account, $31,400, terms 2/10, n/30. 13 Returned part of the purchase of August 10, $1,500, and received credit on account. 15 Purchased merchandise on account, $36,200, terms 1/10, n/60. 25 Purchased merchandise on account, $42,600, terms 2/10, n/30. 28 Paid invoice of August 15 in full

Answer 1

Adjusting entry on August 31 will be required only if purchases are recorded at net amounts and discounts lost are treated as finance expenses.

Journal Entries (Amount in $)

Date	Account titles and explanation	Debit	Credit
August 10	Purchases	30,772
	Accounts Payable [$31,400*(100%-2%)]		30,772
	(To record the purchase of inventory on account)
August 13	Accounts Payable [$1,500*(100%-2%)]	1,470
	Purchases		1,470
	(To record the return of part of purchase on August 10)
August 15	Purchases	35,838
	Accounts Payable [$36,200*(100%-1%)]		35,838
	(To record the purchase of inventory on account)
August 25	Purchases	41,748
	Accounts Payable [$42,600*(100%-2%)]		41,748
	(To record the purchase of inventory on account)
August 28	Accounts Payable	35,838
	Purchase discount lost ($36,200*1%)	362
	Cash		36,200
	(To record the payment to accounts payable)
August 31	Purchase discount lost ($31,400*2%)	628
	Accounts Payable		628
	(To record the adjusting entry for purchase discount lost of purchase on August 10)

Working note:-

1) For the payment of invoice of 15 August on August 28 no discount will be allowed as the payment is made after 10 days from the date of purchase.

2) Only purchase discount lost related to purchase on August 10 will be adjusted on August 31 as 10 days has not expired for the purchase of inventory on August 25 on August 31.