During February, purchases were $100,000, all on account with terms 2/10, n/30. The cost to ship the purchases was $200 and the purchases were made FOB destination. Due to a problem in the color of some of the products, a purchase allowance was permitted in the amount of $1,000. All purchases were paid for in February, within the discount period. Total net activity in the inventory account in February was:
a. $97,000.
b. $97,216.
c. $97,200.
d. $97,020.

The reaon is that the maximum discount is 2%, $200 savings on the cost of ship and $1000 can be claimed. This means that the inventory actually costs is:

Cost of the inventory before discount = $100,000 - $1000 Allowance

= $99,000

The discount on the inventory would be 2%

Net Activity = $99,000 Before discount - $99,000*2% = $97,020

So the option D is the correct answer.

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