Chapter 8, Problem 3P

To determine

Introduction: Payment terms of 2/10, n/30 means, pay the bill amount within 10 days and avail a discount of 2%. Else, the entire amount has to be paid within 30 days.

Payment terms of 1/10, n/60 means, pay the bill amount within 10 days and avail a discount of 1%. Else, the entire amount has to be paid within 60 days.

Given: Some of the transactions of T Company during August are listed in the question. T Company uses the periodic inventory method.

(a1)

To prepare: To prepare general journal entries to record the transactions, assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken.

To determine

(a2)

To describe: To describe how the various items would be shown in the financial statements, assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken.

To determine

(b1)

To prepare: To prepare the general journal entries for the transactions, assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses.

To determine

(b2)

To prepare: To prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time, assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses.

To determine

(b3)

To describe: To describe how the various items would be shown in the financial statements, assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses.

To determine

(c)

To state: To determine to state which of the two methods do you prefer and why.