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30 June, 19:18

Meteor Co. purchased merchandise on March 4, 2021, at a price of $50,000, subject to credit terms of 2/10, n/30. Meteor uses the net method for recording purchases and uses a periodic inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. & 3. Prepare the journal entries to record the appropriate payment if the entire invoice is paid on March 11, 2021 and April 2, 2021.

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  1. 30 June, 22:33
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    Requirement 1

    Purchase - March 4, 2021

    Merchandise $50,000 (debit)

    Liability - Trade Payable $50,000 (credit)

    Requirement 2

    Payment - March 11, 2021

    Liability - Trade Payable $1,000 (debit)

    Discount Received $1,000 (credit)

    Liability - Trade Payable $49,000 (debit)

    Cash $49,000 (debit)

    Requirement 3

    Payment - April 2, 2021

    Liability - Trade Payable $50,000 (debit)

    Cash $50,000 (debit)

    Explanation:

    Purchase - March 4, 2021

    Recognise an Asset - Merchandise and a Liability - Trade Payable

    Payment - March 11, 2021

    Payment has been done within the discounting period:

    (1). Recognise an Income - Discount Received that arise as a result of a decrease in Liability - Trade Payable to the extent of the discount granted (2%)

    (2). Also de-recognise asset - cash and a liability - Trade Payable to the extend the payment has been made (98%)

    Payment - April 2, 2021

    Payment has been done within the discounting period:

    (1). De-recognise asset - cash and a liability - Trade Payable to the extend the payment at 100% (the extent of amount outstanding from the purchase)
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