Chapter 12, Problem 8PB

Air Compressors Inc. purchases compressor parts for its inventory from a supplier. The following transactions take place during the current year:

A. On April 5, the company purchases 400 parts for $8.30 per part, on credit. Terms of the purchase are 4/ 10, n/30, invoice dated April 5.

B. On May 5, Air Compressors does not pay the amount due and renegotiates with the supplier. The supplier agrees to $400 cash immediately as partial payment on note payable due, converting the debt owed into a short-term note, with a 7% annual interest rate, payable in three months from May 5.

C. On August 5, Air Compressors pays its account in full.

Record the journal entries to recognize the initial purchase, the conversion plus cash, and the payment.