P2| Routine Activities of a Business Net and Gross Methods-Entries On December 3

Question

P2| Routine Activities of a Business Net and Gross Methods-Entries On December 3, Ainge Printing purchased inventory listed at $7,400 from Craig Paper Supnh ber 1o for a list price of $10,300. Terms of the purchase were 3/10, n/30. On Decebe6 suppliers for these purchases. Ainge does not use a perpetual inventory system. purchase were 3/10 n/20. inge Printing also purchased inventory from Tippetts Ink Wholesa emdfi ember 16, Ainge paid both paid bo 1. Give the entries to record the purchases and invoice payments assuming that (a) the net used and (b) the gross method is used. end adjusting 2. Assume that Ainge has not paid either of the invoices at December 31. Give the year-end adiu entry if the net method is used

Explanation / Answer

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a. Entries under net method Date Account Title Debit credit Dec.3 Inventory 7178 Accounts Payable 7178 (Purchase from Craig Paper Supply) Dec.10 Inventory 9991 Accounts Payable 9991 (Purchase fromTippetts Ink Wholesale) Dec.13 Accounts Payable 7178 Cash 7178 (Payment made to Craig Paper Supply) Dec.20 Accounts Payable 9991 Cash 9991 (Payment made to Tippetts Ink Wholesale) Under net method the purchase is recorded after adjusting the discount.    For Craig Paper Supply          discount = 3% of 7,400 = $222                                                            purchase = $7,400 - $222 = $7,178    For Tippett Ink Wholesale          discount = 3% of 10,300 = $309                                                            purchase = $10,300 - $309 = $9,991 b. Entries under gross method Date Account Title Debit credit Dec.3 Inventory 7400 Accounts Payable 7400 (Purchase from Craig Paper Supply) Dec.10 Inventory 10300 Accounts Payable 10300 (Purchase fromTippetts Ink Wholesale) Dec.13 Accounts Payable 7400 Discount on purchases 222 Cash 7178 (Payment made to Craig Paper Supply) Dec.20 Accounts Payable 10300 Discount on purchases 309 Cash 9991 (Payment made to Tippetts Ink Wholesale) Under gross method the purchase is recorded at gross value and discount is accounted at the time of payment.

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