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 $1,100 from Green with terms 2/15, n/60. 6 Purchased goods from Munoz for $1,000 with terms 2/15, n/60. 14 Paid Green in full. Feb. 2 Paid Munoz in full. 28 Purchased goods for $900 from Reynolds with terms 2/15, n/60. 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.

Explanation / Answer

Purchase Discounts - Credit terms describe cash discounts offered to purchasers by seller for payment within a specified period of time called the discount period. Buyers view cash discounts as purchase discounts and sellers view them as sales discounts.

Date Particulars Cost ($) Jan-06 purchase from Green $1100 purchase from Munoz 1000 Balance 2100 Jan 14` Less: Discount receved 22 Balance 2078 Feb-28 purchase from Reynolds 900 Feb-28 Cost of inventory $2978

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