Question

Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is the amount of the sales discount allowable?

Answer 1

Answer: $500 discount is allowable

Explanation:

Sales discount allowable on account is $25,000 x 2%

= $500

This is effective if payment is made on or before the 10 day of purchase.

Answer 2

Answer:

$500

Explanation:

sale made on account for $25,000, sales terms 2/10, n/30, FOB shipping point, means that:

• the full invoice price = $25,000
• 2/10 = if the buyer pays the invoice within 10 days, the buyer will get a 2% discount = $25,000 - $500 = $24,500
• n/30 = if the buyer pays the invoice after the 10 day discount period, but before 30 days, the invoice price must be paid at full = $25,000. Generally if the buyer pays the invoice after the 30 days, the seller may (or may not) charge an interest expense on the unpaid invoice
• FOB shipping = means that the title of the goods sold passed to the buyer at the moment the goods left the seller's warehouse.