Slinky Company purchased merchandise on June 10, 2018, at a price of $20,000, subject to credit terms of 2/10, n/30. Slinky uses the net method for recording purchases and uses a perpetual inventory system.
Required:
1. Prepare the journal entry to record the purchase.
2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on June 18, 2018.
3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on July 8, 2018.
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Journal entry to record the purchase: Debit: Inventory 20,000 Credit: Accounts Payable 20,000
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Journal entry to record the payment on June 18, 2018 (within the discount period): Debit: Accounts Payable 20,000 Credit: Cash 19,600 Credit: Discount on Accounts Payable 400
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Journal entry to record the payment on July 8, 2018 (after the discount period): Debit: Accounts Payable 20,000 Credit: Cash 20,000
These entries reflect the purchase using the net method and the perpetual inventory system. The cash discount is taken into account when paying within the discount period. If paid after the discount period, the full amount is paid without any discount.
