Question

Willetta Company purchases inventory for $20,000 with terms 2/10, n/30. It then returns $3,000 of the inventory purchased to the supplier and also receives an allowance for defective inventory of $200. The company pays the amount due within the discount period. What is the amount of the discount that will be taken? (Round your answer to the nearest dollar amount.)

Answer 1

Answer:

$536

Explanation:

In the question, the terms 2/10, n/30 mean that Willetta Company will receive a 2 percent discount if it pays within 10 days or it will pay the full amount (n means net amount) of the amount due in 30 days if it does not pay within 10 days.

Since the company pays the amount due within the discount period of 10 days, that means it received the 2 percent discount.

The amount of the discount that will be taken by Willetta Company can therefore be calculated as follows:

Amount payable = Original purchase amount – Inventory returns - Allowance for defective inventory

Amount payable = $20,000 - $3,000 - $200 = $26,800

Discount amount = Amount payable × discount rate

Discount amount = $26,800 × 2% = $536

Therefore, the amount of the discount that will be taken by Willetta Company is $536.