Question

Mary’s TV uses a perpetual inventory system. The following are three recent merchandising transactions:
Mar. 6 Purchased eight TVs from Whosa Industries on account. Invoice price, $350 per unit, for a total of $2,800. The terms of purchase were 2/10, n/30.
Mar. 11 Sold two of these televisions for $600 cash.
Mar. 16 Paid the account payable to Whosa Industries within the discount period.
Instructions
a. Prepare journal entries to record these transactions assuming that Mary’s records purchases of merchandise at:
1. Net cost
2. Gross invoice price
b. Assume that Mary’s did not pay Whosa Industries within the discount period but instead paid the full invoice price on April 6. Prepare journal entries to record this payment assuming that the original liability had been recorded at:
1. Net cost
2. Gross invoice price
b. Assume that you are evaluating the efficiency of Mary’s bill-paying procedures. Which accounting method—net cost or gross invoice price—provides you with the most useful information? Explain.



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  • CreatedApril 17, 2014
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