Carlton Company uses the perpetual inventory method.On April 15,Carlton Company purchased merchandise inventory from Dixie Inc.with an invoice price of $70,000 and credit terms of 2/10,n/30.How would Carlton Company record this transaction?
A)Debit Merchandise Inventory for $70,000 and credit Cash for $70,000.
B)Debit Merchandise Inventory for $70,000 and credit Accounts Payable for $70,000.
C)Debit Merchandise Inventory for $68,600 and credit Accounts Payable for $68,600.
D)Debit Purchases for $70,000 and credit Accounts Payable for $70,000.
E)Debit Purchases for $68,600 and credit Accounts Payable for $68,600.

Question

Quizplus · Accepted Answer

Carlton Company would record the purchase by debiting Merchandise Inventory for the invoice price, $70,000, and crediting Accounts Payable for the same amount since they have not yet paid for the purchase. Option A is incorrect because Carlton did not pay the full invoice price, so they cannot credit cash for $70,000. Option C is also incorrect because they are not taking the discount, so their Accounts Payable balance would be the full invoice price. Option D is incorrect because Purchases is a temporary account used to record the total amount of merchandise bought during an accounting period, not individual purchases. Option E is incorrect because again they are not taking the discount, so the Accounts Payable balance would be the full invoice price.

Carlton Company Uses the Perpetual Inventory Method