[moogle1979]

Wiley Question –

The question asked was:

Dixon Menswear Shop regularly buys shirts from Colt Company and is allowed trade discounts of 20% and 10% from the list price. Dixon purchased shirts from Colt on May 27, 2011, and received an invoice with a list price amount of $5,000, and payment terms of 2/10, n/30. Dixon uses the net method to record purchases. Dixon should record the purchase at

A. $3,600

B. $3,528

C. $3,500

D. $3,430

The answer said:

Answer B is correct. Purchases are always recorded net of trade discounts. When more than one trade discount is applied to a list price, it is called a chain discount and is applied in steps, i.e., each discount applies to the previously discounted price:

List price [$5,000 – ($5,000 x 20%)] = $4,000 Discounted price

Next, [$4,000 – ($4,000 x 10%)] = $3,600 Gross billing price

When the net method is used the gross billing price must also be reduced by the cash discount to get the amount to be recorded as purchases. The cash discount of 2% is then applied to the gross billing price:

Gross billing price

$3,600

2% discount

72

Net purchase price

$3,528

Using the net method, the purchase is recorded at $3,528.

My question is where did the 2% cash discount come in?

[Peanut]

2/10 equals 2% discount if paid within 10 days I'm pretty sure

AUD 81 (X4) Previous scores 59, 72, 72
REG 80 (X3) Previous scores 59, 60
FAR 75 (X2) Previous score 67
BEC 79 (X2) Previous score 58

[Herbieherb]

It's in the terms 2/10, n/30

NEW YORK- DONE

[moogle1979]

I just figured the 2/10 was the 20% mentioned and the n/30 was the 10%

[Herbieherb]

No the n/30 means net 30. Like peanut said 2% in 10 days, net amount in 30.

NEW YORK- DONE

[moogle1979]

oh so it basically means 2% cash discount if paid in 10 days but total is due in 30 days?

[KERI0323]

That is correct.

BEC 10/11/2010 77
AUD 11/30/2010 81
REG 02/25/2011 78
FAR 11/28/2011 74,68, 83 and DONE!!! NTS LA #460

[moogle1979]

thank you for helping me understand it

[rknight21]

[Author]

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