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1. The entry to record a merchandise purchase of $6,000, with terms of 2/10, n/3

ID: 2401710 • Letter: 1

Question

1. The entry to record a merchandise purchase of $6,000, with terms of 2/10, n/30, using a periodic inventory system would include a A) credit to Accounts Receivable for $6,000. B) credit to Purchases Discounts for $120 C) debit to Purchases for $6,000. D) credit to Accounts Payable for $5,880 2. Each of the following companies is a merchandising business except a A) candy store. B) car wash. C) Auto manufacturer. D) furniture store. 3. The journal entry to record the collection of a $400 account from our credit customer within the 2 percent discount period would include: A) debit to Accounts Receivable for $392 B) credit to Cash for $392. C) debit to Sales Discounts for $8. D) credit to Accounts Receivable for $392. An invoice for a merchandise purchased was received on October 1. The invoice totaled $1,100 which included $100 of shipping. The credit terms were 2/10, n/30. The company uses a periodic inventory method. The entry to record the payment on October 10 would include: A) credit Purchase Discounts $22 B) debit to Purchase Discounts $22 C) credit to Purchase Discounts $20

Explanation / Answer

Answers

The correct answer is Option ‘C’ Debit to Purchase for $ 6,000 will be made in case of Periodic Inventory system merchandise purchased.

Complete entry would include:

Debit to Purchase account $ 6,000
Credit to Accounts Payable $ 6,000

The correct answer is Option ‘B’ Car Wash, as this is NOT a merchandising business.

Merchandising business involves trading of physical merchandise, while Car Wash business sells nothing. Rather it provides SERVICES.

Correct answer is Option ‘C’ Debit to Sales Discount for $ 8

Complete entry would be:

Debit to Cash $ 392 (cash received)
Debit to Sales Discount (discount allowed)
Credit to Accounts receivables $ 400 (Accounts settled)

Discount is given on Purchase amount which is $ 1,000 [$ 1,100 – $ 100 shipping)

Amount of Purchase discount = $ 1,000 x 2% = $ 20

The correct answer is Option ‘C’: A credit to Purchase discount $ 20