Answer:
Dr Accounts Payable $800
Cr Merchandise Inventory $16
Cr Cash $784
Explanation:
The reason is that the term is that the discount given is 2% within the time allowed. So if the company has paid with in the time period then it must be recorded as increase in the accounts payable (Credit) with the $800 when the inventory was received which will increase the inventory (Debit) as well. So the entry would be:
Dr Merchandise Inventory $800
Cr Accounts Payable $800
The inventory return worth of $200, will not be recorded as upon inspection the inventory is returned back to the supplier.
And when the cash is paid the entry would include the discount received which is credit in nature by 2% of $800, decrease in payables by $800 and cash by 98% of $800 as 2% percent is discount. So the entry would be:
Dr Accounts Payable $800
Cr Merchandise Inventory 2% $16
Cr Cash 98% $784
