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:

Question

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The company has a credit balance of $1,600 on its Accounts Payable account ($1,800 - $200 returned). The terms of the purchase are 2/10, n/30 which means the company can take a 2% discount if it pays within 10 days, otherwise the full amount is due within 30 days. Since the company paid on July 28, which is 23 days after the purchase date, it is not eligible for the discount.

The correct journal entry to record the payment on July 28 is to debit Accounts Payable for $1,600 (the full amount due), and credit Cash for $1,600 (the amount paid). Therefore, choice E is the correct answer.

Choice A is incorrect because it reduces the inventory by $1,600 without any reason, and there is no gain or loss from this transaction.

Choice B is incorrect because it shows that the company is paying the full amount due, but it does not reflect the credit balance of $1,600 on its Accounts Payable account.

Choice C is incorrect because it debits Merchandise Inventory for $32, which is the discount that the company is not eligible for. This would be the correct entry if the company paid within 10 days and took the discount.

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