A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise.
- On July 28, 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 July 28 is:
A) Debit Accounts Payable $1,800; credit Cash $1,800.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Merchandise Inventory $1,600; credit Cash $1,600.
D) Debit Accounts Payable $1,600; credit Cash $1,600.
E) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.

Question

Quizplus · Accepted Answer

The company purchased $1,800 of merchandise on credit with terms 2/10, n/30. This means that if the company pays within 10 days, they will receive a 2% discount, otherwise the full amount is due within 30 days. The company returned $200 worth of merchandise, so the net amount due is $1,800 - $200 = $1,600.

The company paid the full amount due on July 28, which is within the discount period, so they are entitled to a 2% discount. Therefore, the total payment amount is $1,600 x 98% = $1,568.

The correct journal entry to record the payment is to debit Accounts Payable for $1,600 and credit Cash for $1,568. The discount of $32 is not recorded separately, but is included in the credit to Cash. Therefore, the correct answer is D.

A Company Purchased $1,800 of Merchandise on July 5 with Terms