Chapter 3, Problem 17E

Effect of cash discounts on financial statements: Perpetual system

Expert Computers was started in 2018. The company experienced the following accounting events during its first year of operation:

1. Started business when it acquired $40,000 cash from the issue of common stock.

2. Purchased merchandise with a list price of $32,000 on account, terms 2/10, n/30.

3. Paid off one-half of the accounts payable balance within the discount period.

4. Sold merchandise on account for $28,000. Credit terms were 1/20, n/30. The merchandise had cost Expert Computers $16,000.

5. Collected cash from the account receivable within the discount period.

6. Paid $2,100 cash for operating expenses.

7. Paid the balance due on accounts payable. The payment was not made within the discount period.

Required

a. Record the events in a horizontal statements model like the following one.

b. What is the amount of gross margin for the period? What is the net income for the period?

c. Why would Expert Computers sell merchandise with the terms 1/20, n/30?

d. What do the terms 2/10, n/30 in Event 2 mean to Expert Computers?