Question

Determine the amount to be paid by the buyer for full settlement of each invoice, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period. Merchandise Transportation Paid by Seller Transportation Terms Returns and Allowances (a) $8,000 $382 FOB Shipping Point, 1/10, net 30 $800 (b) $6,300 $106 FOB Destination, 2/10, net 45 $1,400 a. $ b. $

Answer 1

Answer: Buyer must pay $7,510 for settlement of A and $4,802 for settlement of B.

Explanation:

When a discount term is given as, 1/10, net 30 for instance, it means that the company is offering a 1% discount if the goods are paid for in 30 days and if they aren't they have to be paid in 30 days.

FOB Shipping point means that the Buyer pays for the shipping costs incurred whilst FOB Destination means that the seller will usually record it as their own expense.

a) $8,000 $382 FOB Shipping Point, 1/10, net 30 $800

= 8,000 - 800 (returns)

= 7,200 * (1 - 0.01) + 382 (FOB Shipping point)

= $7,510

b) $6,300 $106 FOB Destination, 2/10, net 45 $1,400

= 6,300 - 1,400 ( returns)

=4,900 * ( 1 - 0.02)

= $4,802

Buyer must pay $7,510 for settlement of A and $4,802 for settlement of B.