Question

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct. 2 Purchased merchandise at a \(3,000 price (\)2,940 net), invoice dated October 2, terms 2∕10, n∕30.

10 Received a credit memorandum toward the return of \(500 (\)490 net) of merchandise that it purchased on October 2.

17 Purchased merchandise at a \(5,400 price (\)5,292 net), invoice dated October 17, terms 2∕10, n∕30.

27 Paid for the merchandise purchased on October 17, less the discount.

31 Paid for the merchandise purchased on October 2. (Payment was mistakenly delayed, which caused the discount to be lost.)

Short answer

1. Both sides of the journal totals$16,800.
2. Both sides of the journal totals$16,514.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Perpetual Inventory System

A process that records all the transactions of n inventory, in which the inventory balance is updated after each sale and purchase, is known as a perpetual inventory system.

Journal entries using gross amounts

Date	Accounts and Explanation	Debit $	Credit $
2 Oct	Merchandise inventory	$3,000
	Account payable		$3,000
10 Oct	Account payable	500
	Merchandise inventory		500
17 Oct	Merchandise inventory	5,400
	Account payable		5,400
27 Oct	Account payable	5,400
	Discount received		108
	Cash		5,292
31 Oct	Account payable	2,500
	Cash		2,500
		$16,800	$16,800

Journal entries using net amounts

Date	Accounts and Explanation	Debit $	Credit $
2 Oct	Merchandise inventory	$2,940
	Account payable		$2,940
10 Oct	Account payable	490
	Merchandise inventory		490
17 Oct	Merchandise inventory	5,292
	Account payable		5,292
27 Oct	Account payable	5,292
	Cash		5,292
31 Oct	Account payable	2,450
	Discount lost	50
	Cash		2,500
		$16,514	$16,514