2. recording purchases
mendoza corporation records its purchases at gross amounts but wishes to change to net metho
below the balances recorded in its books.
purchase discounts 80,000 (8,000 is still available in the accounts payable balance)

purchases 4,000,000
purchase discounts taken 32,000
accounts payable 1,200,000
requirements:
1. amount of purchase discount loss to be recognized.
2. accounts payable balance shall be reduced by what amount?
3. purchases account balance shall be reduced by what amount?
4. entry to record the conversion from gross method to net method.

Question

2. recording purchases
mendoza corporation records its purchases at gross amounts but wishes to change to net metho
below the balances recorded in its books.
purchase discounts 80,000 (8,000 is still available in the accounts payable balance)

purchases 4,000,000
purchase discounts taken 32,000
accounts payable 1,200,000
requirements:
1. amount of purchase discount loss to be recognized.
2. accounts payable balance shall be reduced by what amount?
3. purchases account balance shall be reduced by what amount?
4. entry to record the conversion from gross method to net method.

Accepted Answer

### Sub - Question 1: Amount of purchase discount loss to be recognized
# Explanation:
## Step 1: Determine total available discounts
The total purchase discounts are 80,000, and the discounts taken are 32,000, and the available in accounts payable is 8,000. First, find the total discounts that should be considered. The formula for discount loss is: Total purchase discounts - (Discounts taken + Discounts available in AP).
So, total purchase discounts = 80,000, discounts taken = 32,000, discounts available in AP = 8,000.
## Step 2: Calculate discount loss
Discount loss = 80,000-(32,000 + 8,000)=80,000 - 40,000 = 40,000.
# Answer:
40,000

### Sub - Question 2: Accounts payable balance shall be reduced by what amount?
# Explanation:
## Step 1: Identify the amount to reduce AP
The amount of purchase discounts available in the accounts payable balance is 8,000. So, the accounts payable balance should be reduced by the amount of discounts available in its balance, which is 8,000.
# Answer:
8,000

### Sub - Question 3: Purchases Account balance shall be reduced by what amount?
# Explanation:
## Step 1: Determine the total reduction for purchases
The total purchase discounts are 80,000. Since we are converting from gross to net method, the purchases account should be reduced by the total purchase discounts (because in net method, purchases are recorded net of discounts).
So, the amount to reduce purchases is 80,000.
# Answer:
80,000

### Sub - Question 4: Entry to record the conversion from gross method to net method.
# Explanation:
## Step 1: Identify the accounts and amounts
- Purchase Discounts Lost: 40,000 (from sub - question 1)
- Purchase Discounts: 80,000 (total discounts)
- Accounts Payable: 8,000 (discounts available in AP)
- Purchases: 80,000 (total discounts to reduce purchases)

The journal entry will be:
Debit Purchase Discounts Lost for 40,000, Debit Accounts Payable for 8,000, Credit Purchase Discounts for 80,000, and Credit Purchases for 80,000? Wait, no. Let's re - think.

When converting from gross to net:
- The purchases account (which was recorded at gross) needs to be reduced by total purchase discounts (80,000).
- The accounts payable (gross amount) needs to be reduced by the discounts available (8,000).
- The discount lost is the discounts not taken (40,000).

So the correct entry:
Debit Purchase Discounts Lost 40,000
Debit Accounts Payable 8,000
Credit Purchases 80,000
Credit Purchase Discounts 80,000? No, better way:

In gross method, purchases are recorded at 4,000,000 (gross). In net method, purchases should be 4,000,000 - 80,000 = 3,920,000. So we need to reduce purchases by 80,000.

Accounts payable is 1,200,000 (gross). In net method, accounts payable should be 1,200,000 - 8,000 = 1,192,000 (since 8,000 discounts are available).

The discount lost is 40,000 (as calculated in sub - question 1).

So the journal entry:
Dr. Purchase Discounts Lost 40,000
Dr. Accounts Payable 8,000
Cr. Purchases 80,000
Cr. Purchase Discounts 80,000? No, let's use the correct approach.

The correct journal entry is:

Debit Purchase Discounts Lost 40,000
Debit Accounts Payable 8,000
Credit Purchase Discounts 80,000
Credit Purchases 80,000? Wait, no. Let's recall the gross and net methods.

In gross method:
- Purchases: 4,000,000 (gross)
- Accounts Payable: 1,200,000 (gross)
- Purchase Discounts Taken: 32,000 (already recorded)

In net method:
- Purchases should be 4,000,000 - 80,000 = 3,920,000 (so we credit Purchases for 80,000)
- Accounts Payable should be 1,200,000 - 8,000 = 1,192,000 (so we debit Accounts Payable for 8,000)
- The discount not taken (lost) is 40,000 (so we debit Purchase Discounts Lost for 40,000)
- The total purchase discounts is 80,000, so we credit Purchase Discounts for 80,000 (to reverse or adjust the discount account)

So the entry is:

Dr. Purchase Discounts Lost 40,000
Dr. Accounts Payable 8,000
Cr. Purchase Discounts 80,000
Cr. Purchases 80,000

Wait, another way:

The formula for the entry:

Purchase Discounts Lost (debit) = Total Discounts - (Discounts Taken + Discounts Available) = 80,000-(32,000 + 8,000)=40,000

Accounts Payable (debit) = Discounts Available = 8,000

Purchase Discounts (credit) = Total Discounts = 80,000

Purchases (credit) = Total Discounts = 80,000

Yes, that makes sense.

# Answer:
Debit Purchase Discounts Lost 40,000; Debit Accounts Payable 8,000; Credit Purchase Discounts 80,000; Credit Purchases 80,000

Sovi.AI - AI Math Tutor

QUESTION IMAGE

Question

Explanation:

Sub - Question 1: Amount of purchase discount loss to be recognized

Step 1: Determine total available discounts

Step 2: Calculate discount loss

Step 1: Identify the amount to reduce AP

Step 1: Determine the total reduction for purchases

Answer:

Sub - Question 2: Accounts payable balance shall be reduced by what amount?