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27 December, 10:47

A company purchased $2,000 of merchandise on July 5 with terms 2/10, 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:

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  1. 27 December, 12:12
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    The correct journal entry to record the payment on July 12 is:

    Debit Accounts Payable $1,700

    Credit Merchandise $34

    Credit Cash $1,666

    Explanation:

    Credit terms of 2/10, n/30 means that 2% discount for the payment within 10 days and the full amount to be paid within 30 days.

    On July 5:

    Debit Merchandise $2,000

    Credit Accounts payable $2,000

    On July 7:

    Debit Accounts payable $300

    Credit Merchandise $300

    On July 12, the company pays and takes the appropriate discount:

    2% x ($2,000 - $300) = $34

    The company uses a perpetual inventory system, and records purchases using the gross method.

    The journal entry to record the payment:

    Debit Accounts Payable $1,700

    Credit Merchandise $34

    Credit Cash $1,666
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