On April 11, Edwards Construction Company purchased inventory for $30,000 on terms of 2/10, n/30. It pays the account balance on April 21. Edwards uses a periodic inventory system.
Required:
1. Prepare the journal entries to record the purchase and payment using
(a) Gross price and
(b) Net price.
2. If the company sold half the inventory during April for $20,000, how much income would it recognize under each method?
3. Assume that the invoice was misfiled and, as a result, the company did not pay until April 30. Prepare the journal entries to record the purchase and payment under each of the methods.
4. If the company sold half the inventory during April for $20,000, how much income would it recognize under each method?
5. Why was there a difference in income for the two methods as reported in Requirement 4?