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A company 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 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

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Answer:

The correct journal entry to record the payment on July 12 is:

Accounts Payable $1,600(debit)

Discount Received $32 (credit)

Cash $1,568 (credit)

Explanation:

When Company Purchases Merchandise

Merchandise Inventory  $1,800 (debit)

Accounts Payable  $1,800 (credit)

When Company Returns some Merchandise

Accounts Payable $200 (debit)

Merchandise Inventory $200 (credit)

When Company pay for the Inventory on 12 July

Note : Payment is made within the Cash discount period and it is eligible for the 2% Cash Discount.

Accounts Payable $1,600(debit)

Discount Received $32 (credit)

Cash $1,568 (credit)

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