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On September 12, Ryan Company sold merchandise in the amount of $6,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items old is $4,500. Johnson uses the perpetual inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 8, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is: Multiple Choice Account Title Accounts Payable Merchandise Inventory Cash Account Title Cash Discounts Lost Accounts Payable Account Title Accounts Payable Merchandise Inventory Cash Debit 4,500 Debit 6,664 136 Debit 6,800 Credit 98 4,410 Credit 6,800 Credit 136 6,664

On September 12, Ryan Company sold merchandise in the amount of $6,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items old is $4,500. Johnson uses the perpetual inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 8, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is: Multiple Choice Account Title Accounts Payable Merchandise Inventory Cash Account Title Cash Discounts Lost Accounts Payable Account Title Accounts Payable Merchandise Inventory Cash Debit 4,500 Debit 6,664 136 Debit 6,800 Credit 98 4,410 Credit 6,800 Credit 136 6,664

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1:54 On September 12, Ryan Company sold merchandise in the amount of $6,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Johnson uses the perpetual inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is: Multiple Choice O O Account Title Accounts Payable Merchandise Inventory Cash Account Title Cash Discounts Lost Accounts Payable Account Title Accounts Payable Merchandise Inventory Cash Debit 4,500 Debit 6,664 136 Credit 90 4,410 Credit 6,800 Debit Credit 6,800 136 6,664

**Accounting for Purchase Transactions Using Net Method** On September 12, Ryan Company sold merchandise in the amount of $6,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Johnson uses the perpetual inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is: **Multiple Choice:** **Option A:** | Account Title | Debit | Credit | |---------------------------|-------|---------| | Accounts Payable | | 4,500 | | Merchandise Inventory | 98 | | | Cash | 4,410 | | **Option B:** | Account Title | Debit | Credit | |---------------------------|-------|---------| | Cash | 6,664 | | | Discounts Lost | 136 | | | Accounts Payable | | 6,800 | **Option C:** | Account Title | Debit | Credit | |---------------------------|-------|---------| | Accounts Payable | 6,800 | | | Merchandise Inventory | | 136 | | Cash | | 6,664 | **Explanation of Figures:** - **Option A:** Indicates an accounts payable credit of $4,500, debit to merchandise inventory of $98, and debit to cash of $4,410. This does not accurately reflect the discount and total payment. - **Option B:** Indicates a debit to cash of $6,664, debit to discounts lost of $136, and credit to accounts payable of $6,800. This suggests no discount was taken by treating it as a loss. - **Option C:** Indicates a debit to accounts payable of $6,800, credit to merchandise inventory of $136, and credit to cash of $6,664. This correctly accounts for the discount of 2% on the $6,800 purchase, totalling $136, and the correct cash payment of $6,664. Thus, the correct journal entry for the transaction on September 18, using the net method, is reflected in **Option C**.
Transcribed Image Text:**Accounting for Purchase Transactions Using Net Method** On September 12, Ryan Company sold merchandise in the amount of $6,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Johnson uses the perpetual inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is: **Multiple Choice:** **Option A:** | Account Title | Debit | Credit | |---------------------------|-------|---------| | Accounts Payable | | 4,500 | | Merchandise Inventory | 98 | | | Cash | 4,410 | | **Option B:** | Account Title | Debit | Credit | |---------------------------|-------|---------| | Cash | 6,664 | | | Discounts Lost | 136 | | | Accounts Payable | | 6,800 | **Option C:** | Account Title | Debit | Credit | |---------------------------|-------|---------| | Accounts Payable | 6,800 | | | Merchandise Inventory | | 136 | | Cash | | 6,664 | **Explanation of Figures:** - **Option A:** Indicates an accounts payable credit of $4,500, debit to merchandise inventory of $98, and debit to cash of $4,410. This does not accurately reflect the discount and total payment. - **Option B:** Indicates a debit to cash of $6,664, debit to discounts lost of $136, and credit to accounts payable of $6,800. This suggests no discount was taken by treating it as a loss. - **Option C:** Indicates a debit to accounts payable of $6,800, credit to merchandise inventory of $136, and credit to cash of $6,664. This correctly accounts for the discount of 2% on the $6,800 purchase, totalling $136, and the correct cash payment of $6,664. Thus, the correct journal entry for the transaction on September 18, using the net method, is reflected in **Option C**.
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