A company purchased $2,100 of merchandise on July 5 with terms 3/10, n/30. On Ju

Question

A company purchased $2,100 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $300 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

Multiple Choice

a. Debit Merchandise Inventory $1,800; credit Cash $1,800.

b. Debit Cash $1,800; credit Accounts Payable $1,800.

c. Debit Accounts Payable $1,800; credit Merchandise Inventory $54; credit Cash $1,746.

d. Debit Accounts Payable $2,100; credit Cash $2,100.

e. Debit Accounts Payable $1,800; credit Cash $1,800.

Explanation / Answer

The correct answer is :

c. Debit Accounts Payable $1,800; credit Merchandise Inventory $54; credit Cash $1,746.

Note :

cash paid = Net Sales - discount

= $ 2,100 - $ 300 - ( $ 1,800 * 3%)

= $ 1,746

Merchandise Inventory = $ 1800*3%

= $ 54

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