Shankar Company Uses A Perpetual System To Record Inventory Transactions. The Company Purchases Inventory On Account On February 2 For $28,000, With Terms 2\/10, 1\/30. On February 10, The Company Pays For The Inventory That Was Purchased On Account Record The Inventory Purchase On February 2 And The Payment On February 10. (If No Entry Is Required For A<\/p>\n\n\n\n
The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n Here’s how Shankar Company<\/strong> should record the inventory transactions under the perpetual inventory system<\/strong>:<\/p>\n\n\n\n Date:<\/strong> February 2 To record purchase of inventory on account with terms 2\/10, n\/30.<\/em><\/p>\n<\/blockquote>\n\n\n\n Since the payment is made after the discount period<\/strong> (which ends on February 12<\/strong>, as the terms are 2\/10, meaning a 2% discount if paid within 10 days), the company qualifies for the discount.<\/p>\n\n\n\n Discount = 2% of $28,000 = $560<\/strong> Date:<\/strong> February 10 To record payment within discount period and reduction in inventory for discount taken.<\/em><\/p>\n<\/blockquote>\n\n\n\n Shankar Company uses a perpetual inventory system<\/strong>, which means all inventory transactions (purchases and sales) are recorded directly in the Inventory account. This system allows for real-time updates to inventory levels and cost of goods sold.<\/p>\n\n\n\n On February 2<\/strong>, the company purchases inventory on account for $28,000 under credit terms 2\/10, n\/30<\/strong>. This term means Shankar can take a 2% discount on the purchase if payment is made within 10 days; otherwise, the full amount is due within 30 days. Since this is a perpetual system, the full amount of the inventory ($28,000) is debited to Inventory<\/strong>, and credited to Accounts Payable<\/strong> to show the amount owed to the supplier.<\/p>\n\n\n\n By February 10<\/strong>, Shankar pays the supplier. Since February 10 is within 10 days<\/strong> of February 2, the company qualifies for the 2% discount<\/strong>, which equates to $560<\/strong>. This discount reduces the actual cost of the inventory because under the perpetual system, inventory is always shown at its net cost<\/strong>. Therefore, instead of paying the full $28,000, Shankar pays $27,440 in cash<\/strong>. The company reduces the Inventory account by $560<\/strong> to reflect the lower net cost.<\/p>\n\n\n\n The second journal entry debits Accounts Payable<\/strong> for the original amount ($28,000), credits Cash<\/strong> for the discounted amount paid ($27,440), and credits Inventory<\/strong> for the $560 discount.<\/p>\n","protected":false},"excerpt":{"rendered":" Shankar Company Uses A Perpetual System To Record Inventory Transactions. The Company Purchases Inventory On Account On February 2 For $28,000, With Terms 2\/10, 1\/30. On February 10, The Company Pays For The Inventory That Was Purchased On Account Record The Inventory Purchase On February 2 And The Payment On February 10. 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\n\n\n\nJournal Entry on February 2 (Inventory Purchase):<\/strong><\/h3>\n\n\n\n
Debit:<\/strong> Inventory $28,000
Credit:<\/strong> Accounts Payable $28,000<\/p>\n\n\n\n\n
\n\n\n\nJournal Entry on February 10 (Payment Made):<\/strong><\/h3>\n\n\n\n
\n
Amount Paid = $28,000 \u2212 $560 = $27,440<\/strong><\/p>\n\n\n\n
Debit:<\/strong> Accounts Payable $28,000
Credit:<\/strong> Cash $27,440
Credit:<\/strong> Inventory $560<\/p>\n\n\n\n\n
\n\n\n\nExplanation (300+ words):<\/strong><\/h3>\n\n\n\n