can somebody please explain to me how to do this problem: Cruise Industries purchased $10,800 of merchandise on February 1, 2007, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $2,500 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13.
At what amount would the purchase on February 1 be recorded if the net method were used?
To determine the amount at which the purchase on February 1 would be recorded using the net method, we need to understand the terms and discounts involved.
Step 1: Calculate the trade discount
The trade discount is the discount given by the seller to the buyer as a percentage of the list price. In this case, the trade discount is 10% of the $10,800 purchase.
10% of $10,800 = $1,080
Step 2: Calculate the net purchase price
The net purchase price is the purchase price after deducting the trade discount. Subtract the trade discount amount from the original purchase amount.
$10,800 - $1,080 = $9,720
Step 3: Calculate the cash discount
The credit terms provided are 3/15, n/60. This means that if payment is made within 15 days, a cash discount of 3% can be taken. Otherwise, the full amount is due within 60 days.
Step 4: Determine the payment date and apply cash discount if eligible
The payment date is February 13, which is 12 days after the purchase date (February 1). Since this is before the 15-day discount period expires, the cash discount can be taken.
Step 5: Calculate the net amount paid
To calculate the net amount paid, subtract the cash discount from the net purchase price.
3% of $9,720 = $291.60
$9,720 - $291.60 = $9,428.40
Therefore, if the net method were used, the purchase on February 1 would be recorded at $9,428.40.