Lamprino Appliance uses a perpetual inventory system. The following are three recent merchandising transactions:
June 10 Purchased 10 televisions from Mitsu Industries on account. Invoice price, $300 per unit, for a total of $3,000. The terms of purchase were 2110, n/30.
June 15 Sold one of these televisions for $450 cash.
June 20 Paid the account payable to Mitsu Industries within the discount period.
a. Prepare journal entries to record these transactions assuming that Lamprino records purchases of merchandise at:
1. Net cost
2. Gross invoice price
b. Assume that Lamprino did not pay Mitsu Industries within the discount period but instead paid the full invoice price on July 10. Prepare journal entries to record this payment assuming that the original liability had been recorded at: 1. Net cost and 2. Gross invoice price
c. Assume that you are evaluating the efficiency of Lamprino’s bill-paying procedures. Which accounting method–net cost or gross invoice price–provides you with the most useful information? Explain.