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On June 3, Addison Company purchased merchandise worth $1,600 on credit, terms 2/10, n/30
On June 3, Addison Company purchased merchandise worth $1,600 on credit, terms 2/10, n/30. The account was paid on June 10. What is the required journal entry to record the payment under the periodic inventory system?
a.
Accounts Payable - 1,600
Purchases Discounts - 32
Cash - 1,568
b.
Cash - 1600
Purchases Discounts - 32
Accounts Payable - 1,632
c.
Cash - 1,568
Purchases Discounts - 32
Acoour.ts Payable - 1,600
d.
Accounts Payable - 1,568
Purchases Discounts - 32
Cash - 1,600
Expert Solution
Answer:
a.
Accounts Payable - 1,600
Purchases Discounts - 32
Cash - 1,568
Explanation:
Terms 2/10, n/30 means that a 2% discount will be provided on the cost of the merchandise if payment will be made within 10 days from the date of purchase. Since the account was paid on June 10 which is within the 10 day period from June 3, a 2% discount based on the cost of the merchandise of $1,600 will be received. The journal entry and computation is summarized below:
| Accounts | Debit | Credit |
|---|---|---|
| Accounts Payable | $1,600 | |
| Purchases Discounts ($1,600 * 2%) | $32 | |
| Cash ($1,600 - $32) | $1,568 |
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