Alpha Company used the periodic inventory system for purchase & sales of merchan
ID: 2576121 • Letter: A
Question
Alpha Company used the periodic inventory system for purchase & sales of merchandise. Discount terms for both purchase & sales are, FOB Destination, 2/10, n30 and the net method is used.
> Alpha Company purchased on account $2,500 of merchandise from Bravo Company on May 2, 2016.
> Alpha Company returned, to Bravo Company, $250 of this merchandise on May 3, 2016.
> Freight charges related to this transaction of $150 were paid by Bravo Company.
Use this information to prepare Alpha Company's compound General Journal entry (without explanation) for the payment for merchandise on May 15. If no entry is required then write "No Entry Required."
Explanation / Answer
Cost of purchases = 2,500
Purchase retuns = 250
Net purchases = 2500 - 250 = 2,250
Discount terms = 2/10 net 30, which means 2% discount will be availed if the payment is made within 10 days.
As the net method is used, puchase discount recorded is 45 (2,250 * 2%).
Freight charges are irrelavent as they are paid by bravo company.
Payment was made on May 15, which is after 10 days. So no puchased discount will be received.
Journal entry
Accounts Payable 2,205 Purchase discount lost 45 Cash 2,250Related Questions
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