Nelson company bought inventory for $56,000 on terms of 2/15, n/60. It pays for the first $42,000 of inventory purchased within the discount. And pays for the remaining $14,000.02 months later.

1. Prepare the journal entries to record the purchase and the payment under both (A) gross price and (b) net price methods. Assume that Nelson uses the periodic inventory system.

2. Which of the two methods yields a conceptually preferable valuation of inventory?