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 27 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 net method records purchases at the net amount after discounts. The invoice was recorded at $1,960 ($2,000 - 2% discount). Since the payment was made after the discount period, the discount is lost, requiring an additional $40 to be recorded as Discounts Lost.

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