Asked by Camryn Morrow on May 22, 2024
Verified
Emma Co. sold to Isabella Co. merchandise on account FOB shipping point, 2/10, net 30, for $15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella Co. make to record the payment for the merchandise if Isabella Co. pays within the discount period?
A) Accounts Payable-Emma Co., debit $15,000; Cash, credit $15,000
B) Accounts Payable-Emma Co., debit $15,450; Cash, credit $15,450
C) Accounts Payable-Emma Co., debit $15,000; Freight In, debit $750; Cash, credit $15,750
D) Accounts Payable-Emma Co., debit $15,750; Inventory, debit $300; Cash, credit $16,050
FOB Shipping Point
A term used in shipping contracts to indicate that the buyer is responsible for the cost and risk of loss or damage once the goods are shipped by the seller.
Perpetual Inventory Method
A system that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.
Accounts Payable-Emma Co.
The amount of money Emma Co. owes to its suppliers or creditors for items or services purchased on credit.
- Comprehend the consequences that FOB shipping point and FOB destination terms have on the expenses of freight.
- Comprehend the advantages of procurement discounts and their computation.
Verified Answer
PA
Pedro AdameMay 25, 2024
Final Answer :
B
Explanation :
Isabella Co. would make the following journal entry if they pay within the discount period:
Accounts Payable-Emma Co., debit $15,000
Freight In, debit $750
Cash, credit $14,700
Purchase Discounts, credit $750
The Accounts Payable-Emma Co. account is debited for the amount of the merchandise purchased, and the Freight In account is debited for the prepaid shipping charge. Cash is credited for the amount paid after the discount, which is calculated by subtracting the discount ($15,000 x 2% = $300) from the total invoice amount ($15,000 + $750 = $15,750). Finally, the Purchase Discounts account is credited for the amount of discount received ($300).
Choice B matches this entry, so it is the correct answer.
Accounts Payable-Emma Co., debit $15,000
Freight In, debit $750
Cash, credit $14,700
Purchase Discounts, credit $750
The Accounts Payable-Emma Co. account is debited for the amount of the merchandise purchased, and the Freight In account is debited for the prepaid shipping charge. Cash is credited for the amount paid after the discount, which is calculated by subtracting the discount ($15,000 x 2% = $300) from the total invoice amount ($15,000 + $750 = $15,750). Finally, the Purchase Discounts account is credited for the amount of discount received ($300).
Choice B matches this entry, so it is the correct answer.
Learning Objectives
- Comprehend the consequences that FOB shipping point and FOB destination terms have on the expenses of freight.
- Comprehend the advantages of procurement discounts and their computation.