[Dog1937]

Need a little help with the following...

Barnaby & Sons receives a large shipment of goods from its supplier. It pays $58,000 at the time of delivery and promises to pay the remaining $42,000 within the next two months. What is appropriate journal entry for this transaction?


A.Debit cash $42,000; debit inventory $16,000; credit accounts payable $58,000
B.Debit inventory $100,000; credit cash $58,000; credit accounts payable $42,000
C.Debit accounts payable $58,000; credit cash $42,000; credit inventory $16,000
D.Debit accounts payable $58,000; debit cash $42,000; credit inventory $100,000


I believe the answer is B, however I'm hesitating due to the inventory amount.

Any insight would be greatly appreciated!

[pready]

You are correct. You received $100,000 worth of inventory (increase), paid $58,000 in cash (decrease) and will pay the remaining $42,000 within 2 months which is Accounts Payable (increase).

A is incorrect because you are decreasing Cash and a Debit entry increases cash. The inventory amount is incorrect because the amount is not the difference between the 2 amounts given. The Accounts Payable part is correct though.

C is incorrect because you are increasing Accounts Payable and a Debit entry decreases Accounts Payable. For the inventory part there are two problems; 1. You are increasing Inventory and a Credit entry will decrease inventory and 2. Your amount is incorrect for the same reason as choice A above. The cash part is correct though.

D is incorrect because you are increasing Accounts Payable which will be a Credit entry instead of a Debit entry. Cash is listed incorrectly as a Debit entry which would increase cash. Inventory is listed incorrectly because is should be a Debit which will increase Inventory instead of a Credit which would decrease Inventory.