Question

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns and allowanceswas received prior to payment and that all invoices were paid within the discount period.


Merchandise Freight
Paid by Seller
Freight Terms Returns and
Allowances
a. $90,000 $1,000 FOB shipping point, 1/10, n/30 $15,000
b. 110,000 1,575 FOB destination, 2/10, n/30 8,500
a. $
b. $

Answer 1

Answer:

a. $90,000 $1,000 FOB shipping point, 1/10, n/30 $15,000

$75,250

Explanation:

In the first option as conditions are FOB shipping point the freight must be paid by the buyer, the discount of 1/10, means a 1% discount if the invoice is paid before 10 days, this discount it's apllied on the net value of returns and allowances.

a. $90,000 $1,000 FOB shipping point, 1/10, n/30 $15,000 =

+$90,000-$15,000 - $800 (($90,000-$15,000)*1%) + $1,000 = $75,250

In this case as conditions are FOB destination the freight wont we paid by the buyer, the discount of 2/10, means a 2% discount if the invoice is paid before 10 days, this discount it's apllied on the net value of returns and allowances.

b. 110,000 1,575 FOB destination, 2/10, n/30 8,500= $ 99,470

+110,000-$8,500 - $2,030 (($110,000-$15,000)*1%)  = $99,470