Question

Sarah and Luke each purchased $125 of merchandise from Owens Grocers on account. The terms of both sales were 1/7, n/30. Accounts that are not paid within 30 days are subject to a 2% monthly interest charge. If Sarah paid in 3 days and Luke paid in 36 days, what would be the difference in the merchandise company’s records on the date the customers paid in full?

Answer 1

Answer:

Sarah inventory $ 123.75

Luke inventory  $  125.00

Explanation:

Sarah

125 dollars x 1% discount = 1.25 dollars

Inventory:

125 nominal - 1.25 discount = 123.75

Sarah will enter the inventory for the price it paid to acquire it which is 123.75

Luke

As look paid after the discount period the inventory will be valued at nominal:

125 dollars nominal

the charge is considered interest expense it will not be capitalize through inventory.