Accounts Payable and Cash Discounts On January 4, 2013, Dunbar Company purchased

Question

Accounts Payable and Cash Discounts

On January 4, 2013, Dunbar Company purchased, on credit, 2000 television sets at $500 each. Terms of purchase were 2/10, n/30. Dunbar paid for 20% of these sets on January 13 and the remaining 80% on February 1.

Prepare the journal entries on Dunbar Company's books, assuming that it uses the net price method to record its merchandise, (Dunbar uses a perpetual inventory system). For a compound transaction, if an amount box does not require an entry, leave it blankl or enter 0.

Explanation / Answer

(a) 13 Jan 2013

DR Accounts payable $200,000**

        Cash                      $200,000

(To record partial payment of goods purchased on account)

**Since only 20% payment was made within 10 days (discount period), the discount cannot be availed and so, amount paid = $500 x 2,000 x 20%

(b) 1 Feb 2013

DR Accounts payable $800,000**

        Cash                      $00,000

(To record balance payment of goods purchased on account)

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