A company purchased $10,000 of merchandise on January 5 with terms 2/10,n/30.On January 7,it returned $1,200 worth of merchandise.On January 12,it paid the full amount due.Assuming the company uses a perpetual inventory system,and records purchases using the gross method,the correct journal entry to record the payment on January 12 is:
A)Debit Merchandise Inventory $8,800; credit Cash $8,800.
B)Debit Cash $1,600; credit Accounts Payable $1,600.
C)Debit Accounts Payable $10,000; credit Merchandise Inventory $200; credit Cash $9,800.
D)Debit Accounts Payable $8,800; credit Merchandise Inventory,$176; credit Cash $8,624.
E)Debit Accounts Payable $8,624; credit Cash $8,624.

Question

Quizplus · Accepted Answer

Using the gross method, the company records the merchandise purchase at the full invoice amount of $10,000. After returning $1,200 worth of merchandise, the net amount owed is $8,800.

When paying on January 12, the company needs to reduce the Accounts Payable balance by the net amount owed ($8,800), and also record the discount taken for paying within the discount period ($8,800 x 2% = $176). The remaining amount is paid in cash.

Therefore, the correct journal entry is:

Debit Accounts Payable $8,800 
Credit Merchandise Inventory $176 
Credit Cash $8,624

A Company Purchased $10,000 of Merchandise on January 5 with Terms