During the months of January and February, Axe Corporation purchased goods from

Question

During the months of January and February, Axe Corporation purchased goods from three suppliers. The sequence of events was as follows: Jan. 6 Purchased goods for $1,200 from Green with terms 2/10, n/30. 6 Purchased goods from Munoz for $900 with terms 2/10, n/30. 14 Paid Green in full. Feb 2 Paid Munoz in full. 28 Purchased goods for $350 from Reynolds with terms 2/10, n/45. Required: Assume that Axe uses a perpetual inventory system, the company had no inventory on hand at the beginning of January, and no sales were made during January and February. Calculate the cost of inventory as of February 28. (Input all amounts as positive values. Omit the "$" sign In your response.) Purchases $ Less: Purchase discount from Green Cost of inventory as of February 28 $

Explanation / Answer

When inventory is bought on credit, terms such as “2/10, n/30” may be specified. From the purchaser’s perspective, these terms mean that the purchaser is allowed to deduct a 2 percent purchase discount if payment is made within 10 days of the date of purchase, otherwise the purchase cost (net of any returns or allowances) is due within 30 days of the purchase date broken down by vendor: green jan 6: purchased 1200 jan 14: paid green in full. this is within the 10 days, so a 2% discount applies. $1200 * (1-.02) = 1176 munoz jan 6: purchased 900 feb 2: paid in full. this is outside of the 10 days, so the discount does not apply = 900 the first question is regarding only Green. when a discount like this happens, the "cash" will be depleted by the discount (bringing it to 1176 from 1200), as well as inventory will decrease. less: purchase discount from green = $24 cost of inventory as of february 28 = (you will sum entire inventory cost, less the discounts (in this case only green) through the specified date). so it will be 1200 + 900 + 350 - 24 = $2426 good luck!

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