Some of the transactions of Spandrel Corp. during August follow. Spandrel uses the periodic inventory method.

Instructions
(a) Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken:
1. Prepare general journal entries to record the transactions.
2. Describe how the various items would be shown in the financial statements.
(b) Assuming that purchases are recorded at net amounts and that discounts lost are treated as fmancial expenses:
1. Prepare general journal entries to enter the transactions.
2. Prepare the adjusting entry that is necessary on August 31 if financial statements are prepared at that time.
3. Describe how the various items would be shown in the financial statements.
(c) Which method results in a higher reported gross profit ratio? Explain.
(d) Which of the two methods do you prefer and why?

Transcribed Image Text:

Aug. 10 13 15 25 28 Purchased merchandise on account, $12,000, terms 2/10, n/30. Returned $1,200 of the purchase of August 10 and received a credit on account. Purchased merchandise on account, $16,000, terms 1/10, n/60. Purchased merchandise on account, $20,000, terms 2/10, n/30. Paid the invoice of August 15 in full.