Some of the transactions of torres company during august are listed

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?