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  • Audit Liability 03 Chapter 7

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    Ma Teresa B. Cerezo
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    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).

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    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).

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    3K views2 pages

    Audit Liability 03 Chapter 7

    Uploaded by

    Ma Teresa B. Cerezo
    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).

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    © All Rights Reserved
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    of 2

    PROBLEM 7-2

    Recording Purchases: Gross Method to New Method


    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

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