Q$3.$ Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method.

Date

Aug. $10$

$13$

$15$

$25$

$28$

Transaction

Purchased merchandise on account, $$12,000,$ terms $\frac{2}{10},\frac{n}{30}.$

Returned part of the purchase of August $10,$$$1,200,$ and received credit on account.

Purchased merchandise on account, $$16,000,$ terms $\frac{1}{10},\frac{n}{60}.$

Purchased merchandise on account, $$20,000,$ terms $\frac{2}{10},\frac{n}{30}.$

Paid invoice of August $15$ in full.

Instructions

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

Prepare general journal entries to record the transactions.

Describe how the various accounts in the above journal entries $($except cash$)$ would be

shown in the financial statements.

b$.$ Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses:

Prepare general journal entries to enter the transactions.

Prepare the adjusting entry necessary on August $31$ if financial statements are to be

prepared at that time.

Describe how the various accounts in the above journal entries $($except cash$)$ would be

shown in the financial statements.

C$.$ Which of the two methods do you prefer and why?