Accounting for Purchase Discounts Texas Corp

question 445

Essay

Accounting for purchase discounts Texas Corp.purchased merchandise during 2014 on credit for $200,000; terms 2/10, n/30.All of the gross liability except $30,000 was paid within the discount period.The remainder was paid within the 30-day term.At the end of the annual accounting period, December 31, 2014, 90% of the merchandise had been sold and 10% remained in inventory.The company uses the periodic inventory system. Instructions
a)Assuming that the net method is used for recording purchases, prepare the entries for the
purchase and two subsequent payments.
b)What dollar amounts should be reported for the ending inventory and cost of goods sold
Inventory 8 - 49
under the (1)net method and (2)gross method? Assume that there was no beginning
inventory.

---

Definitions:

Operating Activities

Business activities directly related to the production and delivery of goods and services, forming the primary revenue-producing activities of an entity.

Operating Cash Shortfalls

Situations where a business does not generate enough cash from its operating activities to meet its operational expenses.

Trend Balance Sheet

A financial statement that presents a company's financial position over multiple periods, highlighting trends in assets, liabilities, and equity.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing ownership interest.