Buffet Company uses the periodic inventory method.On April 15,Buffet Company purchased merchandise inventory from Guacos Inc.with an invoice price of $70,000 and credit terms of 2/10,n/30.Buffet Company paid Guacos on April 25.How would Buffet Company record this transaction?
A)Debit Accounts Payable for $70,000,credit Purchase Discounts for $1,400,and credit Cash for $68,600.
B)Debit Accounts Payable for $70,000,credit Merchandise Inventory for $1,400,and credit Cash for $68,600.
C)Debit Accounts Payable for $68,600,debit Purchase Discounts for $1,400,and credit Cash for $70,000.
D)Debit Accounts Payable for $68,600 and credit Cash for $68,600.
E)Debit Accounts Payable for $70,000 and credit Cash for $70,000.

Question

Quizplus · Accepted Answer

The purchase was made on April 15 and Buffet Company paid on April 25, which means it falls within the credit terms of 2/10, n/30. This means that Buffet Company can take advantage of the 2% discount if they pay within 10 days (by April 25). Therefore, they would record the purchase by debiting Accounts Payable for the full amount of $70,000, and then crediting Purchase Discounts for the amount of the discount ($70,000 x 2% = $1,400), and then crediting Cash for the total amount paid ($70,000 - $1,400 = $68,600).

Buffet Company Uses the Periodic Inventory Method