Problem

Comparison of Net Cost and Gross Price MethodsLamprino Appliance uses a perpetual inventor...

Comparison of Net Cost and Gross Price Methods

Lamprino Appliance uses a perpetual inventory system. The following are three recent merchandising transactions:

June 10

Purchased 10 televisions from Mitsu Industries on account. Invoice price, $300 per unit, for a total of $3,000. The terms of purchase were 2/10, n/30.

June 15

Sold one of these televisions for $450 cash.

June 20

Paid the account payable to Mitsu Industries within the discount period.

Instructions

a. Prepare journal entries to record these transactions assuming that Lamprino records purchases of merchandise at:

1. Net cost

2. Gross invoice price


b. Assume that Lamprino did not pay Mitsu Industries within the discount period but instead paid the full invoice price on July 10. Prepare journal entries to record this payment assuming that the original liability had been recorded at:

1. Net cost

2. Gross invoice price


c. Assume that you are evaluating the efficiency of Lamprino’s bill-paying procedures. Which accounting method—net cost or gross invoice price—provides you with the most useful information? Explain.

Step-by-Step Solution

Request Professional Solution

Request Solution!

We need at least 10 more requests to produce the solution.

0 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)


All students who have requested the solution will be notified once they are available.
Add your Solution
Textbook Solutions and Answers Search