Emerald Co. uses a perpetual inventory system and records purchases of merchandi

Question

Emerald Co. uses a perpetual inventory system and records purchases of merchandise at net cost. The company recently purchased 420 compact discs at an invoice price of $6,000 and terms of 4/10, n/30. Half of these discs had been mislabeled and were returned immediately to the supplier. The journal entry to record payment of this invoice after the discount period has expired will include a:

Debit to an expense account for $120.

Debit to Inventory for $3,000.

Credit to Cash for $3,000.

Credit to Cash for $2,880.

Explanation / Answer

Solution -

1) Half of these discs had been mislabeled and were returned - So we need to pay only for half of it ie $3000

2 ) discount period has expired = So no change in payment amount ie 3000 ( it would have reduced if discount was taken )

Now The journal entry to record payment of this invoice

Accounts Payable Debit & Cash or Bank Credit

So answer is

Credit to Cash for $3,000.

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