A firm that uses the perpetual inventory method purchases inventory for $2 000 from a vendor on credit, FOB shipping point, with terms of 2/10, n/30. The firm paid the shipper $100 cash for freight in. Which of the following entries would be made to record payment to the vendor if the payment is made within 10 days? All amounts include GST.
A)$2 000 debit to Accounts payable, a $100 debit to Inventory and a $1 960 credit to Cash
B)$2 000 debit to Accounts payable, a $36.36 credit to Inventory, a $3.64 credit to GST Clearing and a $1 960 credit to Cash
C)$1 960 debit to Accounts payable, a $36.36 debit to Inventory, a $3.64 debit to GST Clearing and a $2 000 credit to Cash
D)$1 960 debit to Accounts payable and a $1 960 credit to Cash

Question

Quizplus · Accepted Answer

The firm receives a 2% discount on the $2,000 purchase, which is $40. The GST on the discount is $3.64 (10% of $36.36), so the inventory is reduced by $36.36. The payment to the vendor is $1,960 ($2,000 - $40).

A Firm That Uses the Perpetual Inventory Method Purchases Inventory