A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit with terms of 2/10, n/30. Defective inventory of $200 is returned 2 days later and the accounts are appropriately adjusted. If the firm paid the vendor within 10 days, which of the following entries would be made to record the payment? All amounts include GST.
A)$800 debit to Accounts payable and an $800 credit to Cash
B)$14.55 debit to Inventory, a $1.45 debit to GST Clearing, an $800 debit to Accounts payable and an $816 credit to Cash
C)$800 debit to Accounts payable, a $14.55 credit to Inventory, a $1.45 debit to GST Clearing and a $784 credit to Cash
D)$784 debit to Accounts payable, a $14.55 debit to Inventory, a $1.45 debit to GST Clearing and an $800 credit to Cash

Question

Quizplus · Accepted Answer

The firm originally purchased $1,000 of inventory but returned $200, leaving $800 payable. With a 2% discount for early payment, the discount is $16 ($800 x 2%). The payment is $784 ($800 - $16). The discount is recorded as a reduction in Inventory, and GST adjustments are made accordingly.

A Firm That Uses the Perpetual Inventory Method Purchases Inventory