Wizard Industries purchased $11,900 of merchandise on February 1, 2012, subject
ID: 2373166 • Letter: W
Question
Wizard Industries purchased $11,900 of merchandise on February 1, 2012, subject to a trade discount of 8% and with credit terms of 3/15, n/60. It returned $3,600 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.
(a) Assuming that Wizard uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method.
b) Assuming that Wizard uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method.
c) At what amount would the purchase on February 1 be recorded if the net method were used?
Date Account Titles and Explanation Debit Credit Feb. 1 Feb. 4 Feb. 13Explanation / Answer
(a) Assuming that Wizard uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method.
Purchases are recorded net of any "Trade Discounts" regardless of what type of method is used.
FEB 1
Dr Merchandise Inventory 10,948
Cr Accounts Payable 10,948
FEB4
3,600 x 92% = 3,312 return amount
Dr Accounts Payable 3,312
Cr Merchandise Inventory 3,312
FEB 13
(10,948 - 3,312) x 3% =229 discount
Dr Accounts Payable 7,636
Cr Cash 7,407
Cr Merchandise Inventory 229
(b) Assuming that Wizard uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method.
FEB 1
Dr Purchases 10,948
Cr Accounts Payable 10,948
FEB4
3,600 x 92% = 3,312 return amount
Dr Accounts Payable 3,312
Cr Purchase Returns and Allowances3,312
FEB 13
(10,948 - 3,312) x 3% =229 discount
Dr Accounts Payable 7,636
Cr Cash 7,407
Cr Purchases Discounts 229
(c) At what amount would the purchase on February 1 be recorded if the net method were used?
10,948 x 97% = 10,620(approx) recorded cost of purchase
Dr Purchases 10,620
Cr Accounts Payable 10,620
3,312 x 97% = 3,213(approx) amount of return
Dr Accounts Payable 3,213
Cr Purchase Returns and Allowances 3,213
Dr Accounts Payable 7,407
Cr Cash 7,407
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