Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 is:. A. Debit Merchandise Inventory $1500; Credit Sales Returns $1500.
B. Debit Accounts Payable $1500; Credit Purchase Returns $1500.
C. Debit Accounts Payable $1500; Credit Cash $1500.
D. Debit Accounts Payable $1500; Credit Merchandise Inventory $1500.
E. Debit Merchandise Inventory $1500; Credit Cash $1500.

Explanation:

The term of transaction is 1/10 , n 30

This means that if Juniper pays up for the merchandise within 10 days after purchase , it is entitled to 1 % of the invoice value or else he should pay up the entire invoice value without a discount not late than 30 days after the purchase.

If the date of transaction is August 7 and the payment day is August 16 , which is 9 days interval , this means that Juniper is entitled to 1% discount

Workings

Inventory purchased =9,750

Returns =                     (1,500)

                                     8,250

Entitled discount = 1%   (82.5)

Final payment              8,167.5

B

The journal entry for the returned merchandise

Debit account payable  $1,500

Credit Merchandise inventory $1,500

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