a) Spend $860,000 to buy Blossom
$860,000 in Accounts Payable (Cr)
Suppliers give credit discounts in order to recoup receivables before the credit period by giving consumers a discount. At the moment of sale, the conditions of payment are decided. Kingbird Company was bought by The Blossom Company under the terms of 2/10, n/30. This means that if the payment is paid within 10 days, a 2% reduction will be given on the invoice price. The discount is not included in the entry because it has not been realised, hence the journal entry at the time of purchase will be recorded as accounts payable for the entire invoice amount.
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