Morgan company received from Lee company an invoice dated September 27.Terms were 2/10 EOM.List price on the invoice were $ 5, 000(freight not included). Morgan received a 9/7 chain discount. Freight charges are Morgan’s responsibilities but Lee agreed to repay the $150 freight charge. Morgan pays the invoice November 9.What does Morgan pays Lee?
To determine what Morgan pays Lee, we need to calculate the total amount due on the invoice and then consider any applicable discounts and adjustments. Let's break it down step by step:
1. Calculate the net amount after the 9/7 chain discount:
The 9/7 chain discount means that Morgan receives a 9% discount for paying within 7 days. To calculate the net amount, subtract the discount from the list price:
Discount = 9% of $5,000 = $450
Net amount = List price - Discount = $5,000 - $450 = $4,550
2. Determine the payment terms and the end of the month (EOM) deadline:
The terms state "2/10 EOM," which means that Lee allows a 2% discount if the payment is made within 10 days from the end of the month. In this case, the end of the month following the invoice date is October.
3. Determine the payment date:
The question states that Morgan pays the invoice on November 9. Since November 9 is after the 10-day discount period, the 2% discount is not applicable.
4. Account for the freight charge:
The freight charge of $150 is initially Morgan's responsibility. However, Lee agreed to repay that amount. Therefore, we subtract $150 from the total amount due.
Now, let's calculate the payment Morgan should make to Lee:
Net amount due = $4,550
Freight charge (paid by Morgan initially, but Lee will repay) = -$150
Total amount due = Net amount due + Freight charge
Total amount due = $4,550 - $150 = $4,400
Therefore, Morgan should pay Lee a total of $4,400.