Question

Details of a purchase invoice and related credit memo are summarized as follows: Invoice: Cost of merchandise listed on purchase invoice $6,500 Prepaid freight charge added to invoice 150 Terms, FOB shipping point, 1/10, n/eom Credit memo: Cost of merchandise returned $1,500 Assume that the credit memo was received prior to payment and that the invoice is paid within the discount period. Determine the following: (a) Amount of the cash discount allowed. $ (b) Amount to be paid by the purchaser if the discount is taken. $ (c) Cost of the merchandise to the purchaser if the discount is NOT taken. $

Answer 1

Answer:

Answer in explanation

Explanation:

The question can be answered as follows;

Firstly, we identify the terms of purchase here;

The terms of purchase here are FOB,shipping.

This means the title passes to the buyer when the goods pass on to tthe common carrier.

This also means that the buyer pays the Freight -in which is the transportation cost

In this case , the transportation costs have been added to the invoice.

Purchases in this case would be :

Purchases - 6,500

Less: returns - (1500)

Net purchases- 5,000

A) Amount of Cash Discount allowed = Net purchases * interest percentage = 5,000x 1%=$50

(b)Amount to be paid if the discount is taken = Net purchases - Amount of cash discount allowed = 5,000 - 50 = $4,950

(c) Cost to the purchaser if the discount is not taken = Net purchases = $5000