Question

Pronghorn Industries purchased $11,700 of merchandise on February 1, 2017, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $3,000 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.

Assuming that Pronghorn uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 6,578. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Feb. 1Feb. 4Feb. 13 Feb. 1Feb. 4Feb. 13 Feb. 1Feb. 4Feb. 13 SHOW LIST OF ACCOUNTS LINK TO TEXT

Assuming that Pronghorn uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 6,578. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Feb. 1Feb. 4Feb. 13 Feb. 1Feb. 4Feb. 13 Feb. 1Feb. 4Feb. 13 SHOW LIST OF ACCOUNTS LINK TO TEXT

At what amount would the purchase on February 1 be recorded if the net method were used? (Round answer to 0 decimal places, e.g. 6,578.) Net price $

Answer 1

a)

Under perpetual method, the following entries will be made:

Date	Particulars	Debit	Credit
Feb. 1	Inventory ($11,700 x 90%)	10,530
	Accounts Payable		10,530
Feb. 4	Accounts Payable ($3,000 x 90%)	2,700
	Inventory		2,700
Feb. 13	Accounts Payable ($10,530 - $2,700)	7,830
	Cash [(7,830 x 97%]		7,595.1
	Inventory [(7,830x 3%]		234.9

b)

Under periodic method, the following entries will be made:

Date	Particulars	Debit	Credit
Feb. 1	Purchases ($11,700x 90%)	10,530
	Accounts Payable		10,530
Feb. 4	Accounts Payable	2,700
	Purchase Returns and Allowances		2,700
Feb. 13	Accounts Payable	7,830
	Cash		7,595.1
	Purchase Discounts		234.9

c)

Under net method, purchase on February 1 would be recorded after taking 3% discount into consideration.

Purchases under net method on February 1 = $11,700 x 90% x 97% = $10,214.1