Saimaa Corp records purchases at gross amounts but wants to change to recording net of purchase discounts. In 2010, discounts totaled P80,000 with P8,000 still available, reducing accounts payable. To record the conversion: purchase discounts lost will increase by P40,000 (the discounts not taken), accounts payable will decrease by P8,000, and purchases will decrease by P80,000 (the total discounts for 2010).
Saimaa Corp records purchases at gross amounts but wants to change to recording net of purchase discounts. In 2010, discounts totaled P80,000 with P8,000 still available, reducing accounts payable. To record the conversion: purchase discounts lost will increase by P40,000 (the discounts not taken), accounts payable will decrease by P8,000, and purchases will decrease by P80,000 (the total discounts for 2010).
Saimaa Corp records purchases at gross amounts but wants to change to recording net of purchase discounts. In 2010, discounts totaled P80,000 with P8,000 still available, reducing accounts payable. To record the conversion: purchase discounts lost will increase by P40,000 (the discounts not taken), accounts payable will decrease by P8,000, and purchases will decrease by P80,000 (the total discounts for 2010).
SAIMAA CORP. records its purchases at gross amounts but wishes to change to recording purchases net of purchase discounts. Discounts on purchases records from January 1,2010 to December 31,2010, totaled P80,000. Of this amount, P8,000 is still available in the accounts payable balance. The balances in Saimaa’s accounts as of and for the year-ended December 31,2010, before conversion are: Purchases P 4,000,000 Purchase Discounts 32,000 Accounts payable 1,200,000 1. The amount of purchase discounts lost to be recognized is A. P8,000 C.P32,000 B. P0 D.P40,000 2. The accounts payable balance should be reduced by A.P8,000 C.P32,000 B.P80,000 D.P40,000 3. The purchases account should be reduce by A.P32,000 C.P40,000 B.P80,000 D.P8,000 4. The entry to record the conversion is A. Accounts payable 80,000 Purchases 80,000 B. Purchases discounts lost 32,000 32,000 C. Purchase discounts lost 40,000 Purchases discounts 32,000 Accounts payable 8,000 Purchases 80,000 D. Purchase discounts lost 32,000 Accounts payable 8,000 Purchases 40,000 SOLUTION 7-2 1. Discounts on 2010 purchases P80,000 Less: Discounts taken 32,000 Discounts still available Accounts payable balance 8,000 40,000 Purchase discounts lost P40,000 Answer: D 2. The accounts payable should be reported net of discounts still available at the end of the reporting period which amounts to P8,000. Answer: A 3. Under the net method, purchases are reported net of discount, regardless of whether the discounts are taken or not. Hence, the purchases account should be reduced by P80,000. Answer: B 4. The entry to record the conversion is: Purchase discounts lost 40,000 Purchase discounts 32,000 Accounts payable 8,000 Purchases 80,000 Answer: C