A Company That Uses the Gross Method of Recording Purchases

question 258

Multiple Choice

A company that uses the gross method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the purchase on July 5 is:

• A)Debit Merchandise Inventory $1,600; credit Cash $1,600.
• B)Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.
• C)Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600.
• D)Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800.
• E)Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

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Definitions:

Dysfunctional Competition

A harmful form of rivalry among businesses that may involve unethical practices, leading to reduced efficiency and harm to consumers or the industry.

Teamwork

The collaborative effort of a group to achieve a common goal or complete a task in the most effective and efficient way.

Imputed Interest Rate

An estimated interest rate used to calculate the present value of future cash flows, when no explicit interest rate is provided.

Residual Income

Income that remains after all costs and expenses, including the cost of capital, have been subtracted from net revenues.