Question

Determine the amount to be paid in full settlement of each of two invoices (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period. If required, round the answers to the nearest dollar. Merchandise Freight Paid by Seller Freight Terms Returns and Allowances a. $8,100 $500 FOB shipping point, 1/10, n/30 $1,700 b. 2,700 500 FOB destination, 2/10, n/30 800

Answer 1

Answer:

Amount to be paid in the full settlement:

a) Merchandise $8,100

   Freight-in        $500

   Returns        ($1,700)

   Discount          ($69) ($8,600 - 1,700)

  Full settlement $6,831

b) Merchandise $2,700

   Returns           ($800)

   Discount            ($38) ($2,700 - 800)

  Full settlement $1,862

Explanation:

Merchandise  Freight Paid         Freight Terms                         Returns &

                        by Seller                                                               Allowances

a. $8,100               $500       FOB shipping point, 1/10, n/30      $1,700

b.  2,700                 500        FOB destination, 2/10, n/30              800

Freight Terms:

a) FOB Shipping point, 1/10, n/30 means that the seller's legal liability for the goods ends at shipping point where responsibility moves to the buyer.  There is also a cash discount of 1% when the buyer pays within 10, but the net credit period is 30 days.  Usually, after the 30-day period, the sale attracts interest.

b) FOB Destination, 2/10, n/30 means that the seller's legal liability for the goods ends at the buyer's dock.  There is a cash discount of 2% to encourage payment within 10 days, but the credit period expires after 30 days.