Problem:
Otto Corp. purchased merchandise during 2010 on credit for $300,000; terms 2/10, n/30. All of the gross liability except $60,000 was paid within the discount period. The remainder was paid within the 30-day term. At the end of the annual accounting period, December 31, 2010, 90% of the merchandise had been sold and 10% remained in inventory. The company uses a periodic system.
Instructions:
Question 1: Assuming that the net method is used for recording purchases, prepare the entries for the purchase and two subsequent payments.
Question 2: What dollar amounts should be reported for the final inventory and cost of goods sold under the (1) net method; (2) gross method? Assume that there was no beginning inventory.
Note: Please show guided help with steps and answer.