Juniper Company, Inc. uses the gross method of recording purchases and a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the payment on August 16 is:
A)Debit Accounts Payable $8,250; credit Cash $8,250.
B)Debit Cash $8,250; credit Accounts Payable $8,250.
C)Debit Accounts Payable $8,250; credit Merchandise Inventory $82.50; credit Cash $8,167.50.
D)Debit Accounts Payable $9,750; credit Merchandise Inventory $97.50; credit Cash $9,652.50.
E)Debit Accounts Payable $9,652.50; credit Cash $9,652.50.

Question

Quizplus · Accepted Answer

The original purchase was $9,750, and after returning $1,500, the payable amount is $8,250. Paying within the discount period (1/10) gives a 1% discount on $8,250, which is $82.50. Therefore, the payment is $8,167.50 in cash, and the discount is recorded as a reduction in Merchandise Inventory.