Question

4) On June 1, Addison Company purchased $9,000 of inventory on account from Garrison Company. Garrison offers a 5% discount if payment is received within 15 days. Addison records the purchase using the gross method and the perpetual inventory system. The journal entry on June 1 by Addison Company includes ________.

Answer 1

Answer: C. a debit to Inventory for $9,000

Explanation:

When recording this entry using the Gross method, inventory will be recorded at the cost not at the discounted figure. This means that in Addison's books, there will be a debit to the Inventory account of the cost price of $9,000.

There will be a corresponding credit to Accounts Payable of the same amount and if the discount is claimed, the discount will be credited to a Purchase discount account when it is being paid.