Question - The Burrito Company, a manufacturer of commercial-use deep fryers, sold 50 units to the Frito-Lay Company on January 14, 2016. The units have a list price of $800 each, but Frito-Lay was given a 25% trade discount. The terms of the sale were 2/10, n/30.
Required:
1. Prepare the journal entries to record the purchase by Frito-Lay on January 14 and payment on January 23, 2016, using the gross method of accounting for purchase discounts. Assume Frito uses the periodic system for inventory.
2. Prepare the journal entries to record the purchase on January 14 and payment on February 20, 2016, using the gross method of accounting for purchase discounts. Assume Frito uses the perpetual system for inventory.
3. Repeat requirements 1 and 2 using the net method of accounting for purchase discounts.