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Chapter 5: Problem 5

Jefferson \& Sons purchased \(\$ 5,000\) of merchandise from the Claremont Company with terms of \(3 / 10, \mathbf{n} / 30\). How much discount is Jefferson \& Sons entitled to take if it pays within the allowed discount period of 10 days? a. \(\$ 50\) b. \(\$ 100\) c, \(\$ 150\) d. \(\$ 300\)

Short Answer

Expert verified
The discount is $150 if paid within 10 days.

Step by step solution

01

Understanding Payment Terms

The payment terms given are "3/10, n/30", which means Jefferson & Sons can take a 3% discount on the invoice amount if they pay within 10 days. If they don't qualify for the discount, the net amount is due within 30 days.
02

Calculating the Discount Amount

To find the discount amount, we calculate 3% of the total purchase of $5,000. Use the formula for the discount: \[ \text{Discount} = \frac{3}{100} \times 5000 \].
03

Performing the Calculation

Now, compute the discount: \[ \text{Discount} = \frac{3}{100} \times 5000 = 150 \]. Thus, Jefferson & Sons is entitled to a discount of $150 if they pay within 10 days.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Payment Terms
Payment terms are the conditions set by a seller regarding the payment timeline and any discounts offered. In such agreements, details like the time frame for payments and percentage discounts are specified. To comprehend these terms, you should know:

  • The percentage discount a buyer can avail of, usually represented by a fraction of the total due amount.
  • The time frame within which the discount is applicable, often stated in days from the invoice date.
  • The overall time frame to clear the invoice if the discount is not availed.
In our example with Jefferson & Sons, the terms were "3/10, n/30." This means a 3% discount is offered if they settle the invoice within 10 days; otherwise, the full amount is due within 30 days.
This helps both buyers and sellers manage their cash flow effectively.
Discount Calculations
Calculating discounts accurately is crucial for buyers to benefit from any offered savings. In discount calculations, the focus is on determining the amount deducted from the total purchase cost.

Here鈥檚 how you can calculate it:
  • Identify the discount percentage from the payment terms. For Jefferson & Sons, it is 3%.
  • Calculate the amount equivalent to this percentage in relation to the total purchase. This involves converting the percentage to a decimal and multiplying it by the purchase total.
For the given scenario, the formula would be\[\text{Discount} = \frac{3}{100} \times 5000 = 150\]Thus, understanding and applying the discount correctly can lead to significant cost savings for buyers.
Merchandise Purchases
Merchandise purchases involve acquiring goods for reselling or retail use, representing a key part of the business cycle. When making these purchases, businesses often consider several factors:
  • Cost of goods and any potential savings through discounts or favorable payment terms.
  • Quality and reliability of the supplier since this affects customer satisfaction and future sales.
  • Associated shipping or handling fees that might impact overall cost efficiency.
For Jefferson & Sons, purchasing merchandise with the offered terms not only secures the goods needed for operations but also opens an opportunity for financial benefit through early payment discounts.
Such strategic purchasing decisions highlight the importance of understanding all associated terms and calculations to maximize business profits.

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Most popular questions from this chapter

Daniel Co. uses the periodic inventory system. When goods are purchased, Daniel will: a. debit freight costs to Inventory. b. debit purchase returns and allowance for returned items. c. debit the Purchases account for purchases on account. d. debit the Inventory account for purchases on account.

Journal Entries for Merchandise Transactions on Seller's and Buyer's Books- Periodic System The following are selected transactions of Fedor. Inc., during the month of January: Jan. 20 Sold and shipped on account to Lawrence Stores merchandise listing for \(\$ 4,500\) with tems of \(2 / 10, n / 30\). 27 Lawrence Stores was granted a \(\$ 500\) allowance on goods shipped January \(20 .\) 29 Received from Lawrence Stores a check for full settlement of the January 20 transaction. Required Prepare joumal entries for (a) Fedor, Inc., and (b) Lawrence Stores. Both companies use the periodic inventory system.

Journal Entries for Merchandise Transactions Jane Distributing Company uses the perpetual inventory system. Jane had the following transactions related to merchandise during the month of August: Aug. 10 Purchased on account merchandise for resale for \(\$ 9,000 ;\) terms were \(2 / 10, \mathrm{n} / 30\). 12 Paid \(\$ 450\) cash for freight on the August 10 purchase. 16 Returned merchandise costing \(\$ 800\) (part of the \(\$ 9,000\) purchase). 19 Paid for merchandise purchased on August \(10 .\) 22 Sold merchandise on account costing \(\$ 8,500\) for \(\$ 11,000 ;\) terms were \(2 / 10, \mathrm{n} / 30\). 25 Customer returned merchandise costing \(\$ 750\) that had been sold on account for \(\$ 900\) (part of the \(\$ 11,000\) sale). 31 Received payment from customer for merchandise sold on August \(22 .\) Required Record each of the transactions related to purchasing and selling merchandise for the Jane Distributing Company.

Accounting for Sales Transactions Madison Company uses the perpetual inventory system. Record the joumal entries for the following transactions: a. On July 16. Madison sold \(\$ 500\) of merchandise with terms of \(3 / 10, n / 30\). The cost of the merchandise was \(\$ 200\). b. On July 19, the customer returned \(\$ 100\) of the merchandise from \((a)\). The cost of the merchandise was \(\$ 40\). c. On July 22, the customer paid the entire balance due to Madison.

Journal Entries for Merchandise Transactions on Seller's and Buyer's Books- Perpetual System Ryan Distributing Company had the following transactions with Arlington, Inc., during the month of November: Nov. 10 Ryan sold and shipped \(\$ 8,000\) worth of merchandise (\$4,500 cost) to Arlington, terms \(1 / 10, n / 30\). 12 Arlington, Inc., paid freight charges on the shipment from Ryan Company, \(\$ 450\). 14 Ryan received \(\$ 600\) of merchandise returned by Arlington ( \(\$ 340\) cost) from the November 10 sale. 19 Ryan received payment in full for the net amount due on the November 10 sale. 24 Arlington returned goods that had originally been billed at \(\$ 400(\$ 280\) cost \()\). Ryan issued a check for \(\$ 396\). Required Prepare the necessary journal entries (a) on the books of Ryan Distributing Company and (b) on the books of Arlington, Inc. Assume that both companies use the perpetual inventory system.
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