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28 March, 05:22

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10, n/30. If payment is made on December 16, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

A. Debit Accounts Payable $1,000; credit Cash $1,000; credit Purchase Discounts $20.

B. Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20.

C. Debit Accounts Payable $1,000; credit Cash $1,000.

D. Debit Merchandise Inventory $20; debit Cash $980; credit Accounts Payable $1,000.

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Answers (1)
  1. 28 March, 06:15
    0
    The correct answer is B

    Explanation:

    The journal entry to the record the goods purchase on December 7 as:

    Inventory A/c ... Dr $1,000

    Accounts Payable A/c ... Cr $1,000

    The journal entry to record on December 16, when payment made is as:

    Accounts Payable A/c ... Dr $ 1,000

    Cash A/c ... Cr $ 980

    Merchandise inventory A/c ... Cr $ 20

    As payment is made within the period of discount, so the person will get discount of 2% on amount.

    Working Note:

    Discount Amount = Goods amount * Discount percentage

    = $1,000 * 2%

    = $20

    Cash Amount = Goods amount - Discount amount

    = $1,000 - $20

    = $980
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