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.

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)