Purchases Transactions

Xanadu Company purchased merchandise on account from Springhill Company for $$7,200,$ terms $\frac{2}{10},\frac{n}{30}.$ Xanadu returned merchandise with an invoice amount of $$1,400$ and received full credit.

a$.$ If Xanadu Company pays the invoice within the discount period, what is the amount of cash required for the payment? If required, round the answer to the nearest dollar.

$

b$.$ What account is debited by Xanadu Company to record the return?

Accounts Payable$-$Springhill Company $$

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$($a$)$ Since buyers normally take all purchase discounts, the net purchase price is recorded at the time of purchase. If the buyer makes a return of merchandise or is granted a price allowance for an invoice with a purchase discount, the amount of the return is recorded at the invoice price less the discount.

$($b$)$ Any discounts or returns are recorded directly by the buyer who reduces the balances of Accounts Payable and Merchandise Inventory, using a debit memo based on the net cost of the merchandise.

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