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Airplanes Unlimited purchases airplane parts from a supplier on March 19 at a quantity of 4,800 parts at $12.50 per part. Terms of the purchase are 3/10, n/30. Airplanes pays one-third of the amount due in cash on March 30 but cannot pay the remaining balance due. The supplier renegotiates the terms on April 18 and allows Airplanes to convert its purchase payment into a short-term note, with an annual interest rate of 9%, payable in six 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 9EB
Textbook Problem
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Airplanes Unlimited purchases airplane parts from a supplier on March 19 at a quantity of 4,800 parts at $12.50 per part. Terms of the purchase are 3/10, n/30. Airplanes pays one-third of the amount due in cash on March 30 but cannot pay the remaining balance due. The supplier renegotiates the terms on April 18 and allows Airplanes to convert its purchase payment into a short-term note, with an annual interest rate of 9%, payable in six 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 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 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 is as follows:

Journal entries
S.No. Date Account Title Debit Credit
A Mar. 19 Purchases $ 60,000
Accounts Payable $ 60,000
(Being purchase made on account) (4800 units @ $12.50)
B Mar...

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Chapter 12 Solutions

Principles of Accounting Volume 1
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