Question

Determine the amount to be paid in full settlement of each purchase invoice, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period. Merchandise Freight Paid Returns and by Seller Freight Terms Allowances a. $11,000 $260 FOB shipping point, 1/10, net 30 $1,100 b. $4,200 $101 FOB destination, 2/10, net 45

Answer 1

Answer:

a. The total cost is:

= ((Cost of goods - Returns) * discount factor) + Freight paid by seller

= ( (11,000 - 1,100) * (1 - 1%)) + 260

= 9,900 * 99% + 260

= $10,061

Note: When shipping is FOB Shipping point, freight is paid by buyer. Discount terms of 1/10 means that a discount of 1% is allowed if settlement is done within 100 days.

b. Total Cost is:

= ( Cost of goods - Returns) * Discount factor

= 4,200 * (1 - 2%)

= $4,116

Note: When shipping is FOB Destination, freight is not paid by buyer. 2/10 discount means 2% discount if settled in 10 days.