Purchases transactions

Question

Bowers Company purchased merchandise on account from Saunders Corp. for $14,000, terms 2/10, n/30. Bowers returned merchandise with an invoice amount of $3,200 and received full credit.

a. If Bowers Company pays the invoice within the discount period, what is the amount of cash required for the payment? If required, round the answer to the nearest dollar.

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b. What account is debited by Bowers Company to record the return?

Answer 1

Let's solve each part of your question step by step.

a. Calculation of Cash Payment

1. Original Purchase Amount: $14,000
2. Amount Returned: $3,200
3. Net Amount After Return: \[ \text{Net Amount} = \text{Original Purchase} - \text{Amount Returned} = 14,000 - 3,200 = 10,800 \]
4. Discount Terms: 2/10, n/30 means a 2% discount if paid within 10 days.
5. Discount Calculation: \[ \text{Discount} = \text{Net Amount} \times \text{Discount Rate} = 10,800 \times 0.02 = 216 \]
6. Cash Payment After Discount: \[ \text{Cash Payment} = \text{Net Amount} - \text{Discount} = 10,800 - 216 = 10,584 \]

So, the cash required for the payment, rounded to the nearest dollar, is $10,584.

b. Account Debited for the Return

When Bowers Company returns merchandise, they will debit the "Purchases Returns and Allowances" account (or "Inventory" if they maintain perpetual inventory accounting). The exact account can vary based on the company's accounting policies, but generally, it is:

Purchases Returns and Allowances

If using a perpetual inventory system, the account debited would be Inventory.

Please let me know if you need further clarification or additional information!