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Barkers Baked Goods purchases dog treats from a supplier on February 2 at a quantity of 6,000 treats at $1 per treat. Terms of the purchase are 2/10, n/30. Barkers pays half the amount due in cash on February 28 but cannot pay the remaining balance due in four days. The supplier renegotiates the terms on March 4 and allows Barkers to convert its purchase payment into a short-term note, with an annual interest rate of 6%, payable in 9 months. Show the entries for the initial purchase, the partial payment, and the conversion.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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Chapter
Section
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 12, Problem 10EA
Textbook Problem
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Barkers Baked Goods purchases dog treats from a supplier on February 2 at a quantity of 6,000 treats at $1 per treat. Terms of the purchase are 2/10, n/30. Barkers pays half the amount due in cash on February 28 but cannot pay the remaining balance due in four days. The supplier renegotiates the terms on March 4 and allows Barkers to convert its purchase payment into a short-term note, with an annual interest rate of 6%, payable in 9 months.

Show the entries for the initial purchase, the partial payment, and the conversion.

To determine

Concept introduction:

Purchase terms may contain the cash discount for early payment of the credit purchase. For example: a term 2/10, n/30 means that there shall be a 2% discount allowed if the payment is made within 10 days and the total credit period allowed is 30 days.

Journal Entry:

In journal entry a company records all the business transactions which are in monetary form. Company records the transaction on debit and credit in journal entry which are always equal.

To prepare:

The journal entries for the given transaction.

Explanation of Solution

The journal entries for the given transaction are explained as follows:

Journal entries
S.No. Date Account Title Debit Credit
A Feb. 2 Purchases $ 6,000
Accounts Payable $ 6,000
(Being purchase made on account) (6000 units @ $1)
B Feb...

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Chapter 12 Solutions

Principles of Accounting Volume 1
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