Question

General Motors purchased on account a shipment of iron bars from Furnace Inc. and promptly paid within the discount period. Compute the total value of inventory purchased. (4 points) Invoice price: 220,000 Shipping cost (FOB destination point): 20,000 Purchase allowance for flawed pieces: 20,000 Cash discount offered: 5%
A) 189,000
B) 190,000
C) 209,000
D) 210,000
E) 249,000

Answer 1

Answer:

Option C,$209,000 is the correct answer.

Explanation:

The total value of inventory purchased comprises of invoice price plus shipping cost,less allowance for flawed pieces as well as the cash discount received as shown computed below:

Invoice price                                                       $220,000

shipping cost                                                       $20,000

purchase allowance for flawed pieces              ($20,000)

Cash discount 5%*(220,000+20000-20,000)   ($11,000)

Total value of inventory purchased                      $209,000

The cash discount was taken because payment was made within the discount period