2024 – P8 3 Purchases Recorded Gross and Net Some of the transactions of Torres Company during August

P8-3 (Purchases Recorded Gross and Net) Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method.

Aug 10	Purchased merchandise on account, terms 2/10, n/30	$12,000
Aug 13	Returned part of the purchase of Aug 10, and received credit on acct	$1,200
Aug 15	Purchased merchandise on account, terms 1/10, n/60	$16,000
Aug 25	Purchased merchandise on account, terms 2/10, n/30	$20,000
Aug 28	Paid invoice of August 15 in full.

 

(a) Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken:

(1) Prepare general journal entries to record the transactions.

(2) Describe how the various items would be shown in the financial statements.

 

(b) Assuming that purchases are recorded at net amounts and that discounts lost are treated as finance expenses:

(1) Prepare general journal entries to record the transactions.

(2) Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time.

(3) Describe how the various items would be shown in the financial statements.