Chapter 7 homework - Discounts Nelson Company bought...

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Discounts Nelson Company bought inventory for $50,000 on terms of 2/15, n/60. It pays for the first $37,500 of inventory purchased within the discount period and pays for the remaining $12,500 two months later. Required Hide 1(a). Prepare the journal entries to record the purchase and the payment under the gross price method. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0". To record inventory purchase. To record payment of three-fourths of inventory purchase within the discount period. Inventory (or Purc 50,000 Accounts Payabl 50,000 To record invento Accounts Payabl 37,500 Cash 36,750 Purchases Disco 750 To record payme Accounts Payabl 12,500
To record payment after the discount period. Cash 12,500 To record payme
Hide Feedback Correct Check My Work Feedback Under the gross price method, a company records the purchase at the gross price and records the amount of the discount in the accounting system only if the discount is taken. You should deduct the discount from the purchase price of the inventory. Hide 1(b). Prepare the journal entries to record the purchase and the payment under the net price method. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0". To record inventory purchase. Inventory (or Purc 49,000 Accounts Payabl 49,000 To record invento Accounts Payabl 36,750 Cash 36,750
To record payment of three-fourths of inventory purchase within the discount period. To record payment after the discount period. Hide Feedback Partially Correct Check My Work Feedback Under the net price method, a company records the purchase at its net price and records the amount of the discount in the accounting system only if the discount is not taken. You should treat discounts lost as a period expense. Which of the two methods yields a conceptually preferable valuation of inventory? The method yields the conceptually preferable inventory valuation because discounts not taken are . The method isolates discounts which assists management in identifying inefficiencies. Hide Feedback Correct Check My Work Feedback The net price method treats any discounts not taken as a period expense because losing the discount does not increase the economic benefits to be derived from the inventory. In contrast, the gross price To record payme Accounts Payabl 50,000 Purchases Disco 250 Cash 50,250 To record payme net price Correct 1 of Item 3

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