Accounts Payable and Cash Discounts

Instructions

Dunbar Company sells electronics and on January 4, 2016, purchased 2,500 television sets at $800 each, on credit. Terms of the purchase were 2/10, n/30. Dunbar paid for 20% of these sets on January 13 and the remaining 80% on February 1.

Required:

1.	Prepare the journal entries on Dunbar Companys books, assuming that it uses the net price method to record its merchandise. (Dunbar uses a perpetual inventory system.)
2.	Next Level Discuss the conceptual advantage of the net price method compared to the gross price method.

Chart of Accounts

CHART OF ACCOUNTS

Dunbar Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
501	Purchases Discounts Lost
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

General Journal

Prepare the journal entries on Dunbar Companys books, assuming that it uses the net price method to record its merchandise. (Dunbar uses a perpetual inventory system.)

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7

Next Level

Discuss the conceptual advantage of the net price method compared to the gross price method.

The method is theoretically superior to the method because it values the inventory and the related liability at the amount that the company expects to pay to acquire the goods.