On June 1,Atkinson Company purchased $5,000 of inventory on account from Donnie Company.Donnie Company offers a 3% discount if payment is received within 15 days.Atkinson Company records the purchase using the gross method and the perpetual inventory system.Atkinson Company makes the payment for the inventory on June 10.The journal entry on June 10 by Atkinson Company includes ________.
A)a debit to Cash for $5,000
B)a credit to Cash for $4,850
C)a debit to Inventory for $150
D)a credit to Interest Expense for $150

Question

Quizplus · Accepted Answer

Since Atkinson Company paid within 15 days, they are eligible for the 3% discount. The discount amount is $150 ($5,000 x 3%). Therefore, the journal entry on June 10 should show a credit to Accounts Payable for $5,000, a debit to Inventory for $5,000, and a credit to Cash for $4,850 ($5,000 - $150). So, the correct answer is B. Choice A is incorrect because it doesn't reflect the discount received. Choice C is incorrect because the inventory was already recorded when it was purchased. Choice D is incorrect because there is no interest expense involved in this transaction.

On June 1,Atkinson Company Purchased $5,000 of Inventory on Account