Summary Business Accounting

Question:

On December 28, 2013, Videotech Corporation (VTC) purchased 10 units of a new satellite uplink

system from Tristar Communications for $25,000 each. The terms of each sale were 1/10, n/30. VTC uses

the gross method to account for purchase discounts and a perpetual inventory system. VTC paid the net-

of-discount amount on

January 6, 2014. Prepare the journal entries on December 28 and January 6 to record the purchase and

payment.



Answer:



Purchase price = 10 units x $25,000 = $250,000




December 28, 2013

Inventory............................................................................................... 250,000

Accounts payable.............................................................................. 250,000




January 6, 2014

Accounts payable................................................................................... 250,000

Cash (99% x $250,000).................................................................... 247,500

Inventory (1% x $250,000)............................................................... 2,500