The Track Shack, a recording studio in Jackson, Mississippi recently ordered $8,

Question

The Track Shack, a recording studio in Jackson, Mississippi recently ordered $8,750 worth of digital storage media to keep in their warehouse. These media devices (thumb drives, CD's, etc.) will be given to clients/recording artists to hold demo songs, etc. after post production services have been applied to their talents. When delivered the shipment included the printed invoice from MS&C Inc. noting the terms 3/10,n/30.

What would the journal entry look like record the inventory purchase when ordered/delivered if the Track Shack uses the perpetual inventory method?

Item # 2 is the correct journal entry

Item # 4 is the correct journal entry

Item # 3 is the correct journal entry

Item # 1 is the correct journal entry

Item Accounts/Descriptions Post Ref DEBIT CREDIT 1 Merchandise Inventory $8,487.50    Accounts Payable $8,487.50 2 Merchandise Inventory $8,750.00    Accounts Payable $8,750.00 3 Accounts Payable $8,750.00     Merchandise Inventory $262.50     Cash $8,487.50 4 Accounts Payable $8,487.50     Cash $8,487.50

Explanation / Answer

Under perpetual inventory method , the purchase of inventory is recorded by debiting inventories and crediting accounts payable assuming that the inventories are bought on credit. Hence, option A is correct in which item number 2 is the correct journal entry i.e.

Merchandise inventory dr $8750

To accounts payable $8750

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