FBS Corporation uses the perpetual inventory method and the gross method for recording purchases on account. On May 11, it purchased $44,000 of inventory, terms 2/10, n/30. On May 13, FBS returned goods that cost $4,000. On May 19, FBS paid the supplier. On May 19, the company should credit

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Business

Chelsea Casey

1 January, 19:19

FBS Corporation uses the perpetual inventory method and the gross method for recording purchases on account. On May 11, it purchased $44,000 of inventory, terms 2/10, n/30. On May 13, FBS returned goods that cost $4,000. On May 19, FBS paid the supplier. On May 19, the company should credit

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Cannon Gallagher · Answer 1

FBS Corporation should credit Merchandise Inventory account for $800

Explanation:

Since FBS uses the gross method to record purchases on account, it records invoices without considering any possible cash discounts. So the value recorded for the purchased merchandise was $800 higher than the real price. Therefore the company should credit the merchandise inventory account for the total cash discount:

cash discount = (total purchase - returned merchandise) x 2% = ($44,000 - $4,000) x 2% = $800