During the months of January and February, Axe Corporation purchased goods from
ID: 2730229 • Letter: D
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 $1,000 from Green with terms 2.5/10, n/30. 6 Purchased goods from Munoz for $1,100 with terms 3/10, n/30. 14 Paid Green in full. Feb. 2 Paid Munoz in full. 28 Purchased goods for $250 from Reynolds with terms 3/10, n/30. 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
Jan 6 purchases from Green
Cost of purchase = 1000
Discount is applicable as payment is being made within 10 days.
Discount = 1000 x 2.50% = 25
Net cost of purchase = 1000-25 = 975
Jan 6 purchases from Munoz
Cost of purchase = 1100
Discount is not applicable as payment is made after the discount period. So net cost of purchase would be 1,100.
Feb 28 purchases from Reynolds
Cost of purchase = 250
Discount is not applicable as no information about payment is given.
No sale has been made during these two months. So all the purchases would be in stock inventory. Therefore, inventory balance would be:
Inventory = 975 +1100 +250
= 2,325
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