Merchandise with an invoice price of $2,000 was purchased on February 3,terms 2/15,n/60.The company uses the net method to record purchases.The entry to record the cash payment of this purchase obligation on February 17 is:
A)Debit Accounts Payable $1,960;credit Cash $1,960.
B)Debit Accounts Payable $2,000;credit Cash $2,000.
C)Debit Accounts Payable $1,960;debit Discounts Lost $40;credit Cash $2,000.
D)Debit Accounts Payable $2,000;credit Merchandise Inventory $40;credit Cash $1,960.
E)Debit Accounts Payable $2,000;credit Discounts Lost $40;credit Cash $1,960.

Question

Quizplus · Accepted Answer

The company uses the net method to record purchases, so the initial entry to record the purchase on February 3 would have been:Debit: Merchandise Inventory $2,000Credit: Accounts Payable $2,000Since the company paid the invoice within the discount period, it is entitled to a 2% discount. The amount of the discount is $2,000 x 2% = $40.Therefore, the entry to record the cash payment of this purchase obligation on February 17 would be:Debit: Accounts Payable $1,960Credit: Cash $1,960

Merchandise with an Invoice Price of $2,000 Was Purchased on February