Question

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply).

Credit Purchase Discounts $20

Credit Cash $980

Debit Accounts Payable $1,000

Credit Cash $1,000

Debit Merchandise Inventory $20

Credit Merchandise Inventory $20

Credit Accounts Payable $1,000

Answer 1

Answer:

                                                                  Debit                  Credit

Accounts payable                                    $1,000

Purchase Discounts                                                             $20

(2%*1,000)

Cash                                                                                      $980

Explanation:

Since the discount of 2% has been availed by the LOL Music Store because the payment has been made to the supplier within the five days and following journal entry shall be made by the LOL Music store in its accounts on November 21:

                                                                  Debit                  Credit

Accounts payable                                    $1,000

Purchase Discounts                                                             $20

(2%*1,000)

Cash                                                                                      $980