Financial & Managerial Accounting 17th Edition by Jan Williams ,Susan Haka,Mark Bettner,Joseph Carcello

Exercise 44

Comparison of Net Cost and Gross Price Methods
Kitchen Electrics uses a perpetual inventory system. The following are three recent merchandising transactions:

Instructions
a. Prepare journal entries to record these transactions assuming that Kitchen Electrics records purchases of merchandise at:
1. Net cost
2. Gross invoice price
b. Assume that Kitchen Electrics did not pay Polar Co. within the discount period but instead paid the full invoice price on May 10. Prepare journal entries to record this payment assuming that the original liability had been recorded at:
1. Net cost
2. Gross invoice price
c. Assume that you are evaluating the efficiency of Kitchen Electric's bill-paying procedures. Which accounting method-net cost or gross invoice price-provides you with the most useful information? Explain.