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

Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method.
 
P8-3 (Purchases Recorded Gross and Net) Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method.
Aug 10
Purchased merchandise on account, terms 2/10, n/30
$12,000
Aug 13
Returned part of the purchase of Aug 10, and received credit on acct
$1,200
Aug 15
Purchased merchandise on account, terms 1/10, n/60
$16,000
Aug 25
Purchased merchandise on account, terms 2/10, n/30
$20,000
Aug 28
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:
(1) Prepare general journal entries to record the transactions.
(2) Describe how the various items would be shown in the financial statements.
(b) Assuming that purchases are recorded at net amounts and that discounts lost are treated as finance expenses:
(1) Prepare general journal entries to record the transactions.
(2) Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared
       at that time.
(3) Describe how the various items would be shown in the financial statements.
(c) Which of the two methods do you prefer and why?
 
TUTORIAL PREVIEW
(a) Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken:
(1) Prepare general journal entries to record the transactions.
Aug 10
Purchases
12,000
Accounts Payable
12,000
Aug 13
Accounts Payable
1,200
Purchases Returns and Allowances
1,200
 
File name: P8-3 Torres Company.xls File type: .doc  PRICE: $9