A company that uses the perpetual inventory method purchases inventory of $1,000 on account with terms of 2/10,n/30.Defective inventory of $200 is returned 2 days later and the accounts are appropriately adjusted.If the company paid the vendor within 10 days,which of the following entries would be made to record the payment?
A) $800 debit to Accounts payable and an $800 credit to Cash
B) $784 debit to Accounts payable, a $16 debit to Inventory and an $800 credit to Cash
C) $16 debit to Inventory, an $800 debit to Accounts payable and an $816 credit to Cash
D) $800 debit to Accounts payable, a $16 credit to Inventory and a $784 credit to Cash

Question

Quizplus · Accepted Answer

The original purchase was for $1,000, but $200 worth of defective inventory was returned, leaving a balance of $800 owed to the vendor. The payment was made within the discount period (10 days), so the company would receive a 2% discount ($800 x 2% = $16). 
Therefore, the entry to record the payment would be a $800 debit to Accounts payable, a $16 credit to Inventory (for the discount), and a $784 credit to Cash (the amount paid after the discount). Option D is the only choice that includes these three entries.

A Company That Uses the Perpetual Inventory Method Purchases Inventory