Question

Testbank Question 139 The Dilly Company marks up all merchandise at 25% of gross purchase price. All purchases are made on account with terms of 1/10, (1% discount if paid in 10 days) net/60 (full amount due within 60 days). Purchase discounts, which are recorded as miscellaneous income, are always taken. Normally, 60% of each month's purchases are paid for in the first month after purchase, whereas the other 40% are paid during the first 10 days of the first month after purchase. Inventories of merchandise at the end of each month are kept at 30% of the next month's forecasted cost of goods sold. Terms for sales on account are 2/10 (2% discount if paid within 10 days), net/30 (full amount due in 30 days). Cash sales are not subject to discount. Fifty percent of each month's sales on account are collected during the month of sale, 45% are collected in the succeeding month, and the remainder is usually uncollectible. Seventy percent of the collections in the month of sale are subject to discount, and 10% of the collections in the succeeding month are subject to discount (2%). Forecasted sales data and cost of sales for selected months are as follows: December January February March Sales on Account (Gross). $1,900,000 1,500,000 1,700,000 1,600,000 Cash Sales $400,000 250,000 350,000 300,000 Cost of Goods sold $1,840,000 1,400,000 1,640,000 1,520,000 Forecasted sales discounts to be taken by customers making remittances during February are: $5,250 $15,925 $30,500 $11,900 O None of the above

Answer 1

Solution:

Forecasted sales discount for remittances during February = ($1,700,000*50%*70%2%) + ($1,500,000*45%*10%*2%)

= $11,900 + $1,350

= $13,250

Hence last option "None of the above" is correct.