Taos Company purchased merchandise for resale from Tuscon Company with an invoic

Question

Taos Company purchased merchandise for resale from Tuscon Company with an invoice price of $19,300 and credit terms of 3/10, n/60. The merchandise had cost Tuscon $13,163. Taos paid within the discount period. Assume that both buyer and seller use a perpetual inventory system. 1(a) Prepare entries that the buyer should record for the purchase. (Omit the "$" sign in your response.) General Journal Debit Credit 1(b) Prepare entries that the buyer should record for the cash payment. (Omit the "$" sign in your response.) General Journal Debit Credit 2(a) Prepare entries that the seller should record for the sale. (Omit the "$" sign in your response.) General Journal Debit Credit 2(b) Prepare entries that the seller should record for the cash collection. (Omit the "$" sign in your response.) General Journal Debit Credit 3. Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 11% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Use 365 days a year. Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.) Buyer's net savings $

Explanation / Answer

1(a) Prepare entries that the buyer should record for the purchase. mmddyy Merch Inv Dr 19,300 Acct Payable Cr 19300 (Term 3/10, n/60) (b) Prepare entries that the buyer should record for the cash payment. mmddyy Acct Payable Dr 19300 Purch Disc Cr 579 Cash Cr 18,721 (Disc 3%*19300 = 579) 2(a) Prepare entries that the seller should record for the sale. mmddyy Acct Rxable Dr 19300 Sales Cr 19,300 mmddyy COGS Dr 13,163 Merch Inv Cr 13,163 2(b) Prepare entries that the seller should record for the cash collection. mmddyy Cash Dr 18,721 Sale Disc Dr 579 Acct Rxable Cr 19300 3. Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 11% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. Amt borrowed = 18721 for (30-10) = 20 days So Int = (20/365)*18721*11% = $112.84 By paying within disc period, Disc rxd 579 So AMt saved = 579-112.84 = 466.16

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