PROBLEM 8-3 (a) 1. 2. 8/10 Purchases................................................................ 12,000 Accounts Payable.......................................... 12,000 8/13 Accounts Payable................................................... Purchase Returns and Allowances............... 1,200 1,200 8/15 Purchases................................................................ 16,000 Accounts Payable.......................................... 16,000 8/25 Purchases................................................................ 20,000 Accounts Payable.......................................... 20,000 8/28 Accounts Payable................................................... 16,000 Cash................................................................. 16,000 Purchases—addition to beginning inventory in cost of goods sold section of income statement. Purchase returns and allowances—deduction from purchases in cost of goods sold section of the income statement. Accounts payable—current liability in the current liabilities section of the balance sheet. (b) 1. 8/10 Purchases................................................................ 11,760 Accounts Payable ($12,000 X .98)................. 8/13 Accounts Payable................................................... 1,176 Purchase Returns and Allowances ($1,200 X .98)................................................ 8-40 11,760 1,176 PROBLEM 8-3 (Continued) 2. 3. (c) 8/15 Purchases................................................................ 15,840 Accounts Payable ($16,000 X .99)................. 15,840 8/25 Purchases................................................................ 19,600 Accounts Payable ($20,000 X .98)................. 19,600 8/28 Accounts Payable................................................... 15,840 Purchase Discounts Lost....................................... 160 Cash................................................................. 16,000 8/31 Purchase Discounts Lost....................................... 216 Accounts Payable (.02 X [$12,000 – $1,200])............................ 216 Same as part (a) (2) except: Purchase Discounts Lost—treat as financial expense in income statement. The second method is better theoretically because it results in the inventory being carried net of purchase discounts, and purchase discounts not taken are shown as an expense. The first method is normally used, however, for practical reasons. LO: 2, Bloom: AP, Difficulty: Moderate, Time: 20-25, AACSB: Analysis, Communication, AICPA BB: None Reporting, AICPA PC: Communication 8-41