Question

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:___.
A. $8, 167.50.
B. $9, 652.50.
C. $9, 750.00.
D. $8, 250.00.
E. $8, 152.50.

Answer 1

Answer:

A. $8, 167.50

Explanation:

The fact Juniper company returned $1,500 worth of merchandise, means that it is only obliged to pay the amount of $8,250($9,750-$1,500).

However, the payment was made on 16th August, which is the discount period of 10 days, hence, the cash paid on August 16 is computed thus:

cash paid=amount of merchandise owed*(1-discount rate)

discount rate=1%(1% discount if payment is made within 10 days of the purchase date)

cash paid=$8,250*(1-1%)

cash paid=$ 8,167.50