On March 15, 2016, Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10, n/30. Ryan Company records its purchases using the gross amount. The periodic inventory system is used. Which of the following journal entries is correct when Ryan Company pays for these goods on March 30, 2016?

Question

Quizplus · Accepted Answer

The correct journal entry when Ryan Company pays for the goods on March 30, 2016, is to debit accounts payable for $9,800 ($10,000 gross amount - $200 discount taken), credit merchandise inventory for $10,000, and credit cash for $9,800. This is because Ryan Company uses the gross amount method, which means that it records the full amount of the purchase without taking into account any discounts offered. Once the payment is made within the discount period, a discount is taken and accounts payable is reduced by that amount. Therefore, Journal entry B is the correct choice.

On March 15, 2016, Ryan Company Purchased $10,000 of Merchandise