Question

Cash Discount Review, Tu 41400 Chapter 8 and Distribution Finance Handy Rule: "30 days hath September. April June and November all the others have 31 expect February which has 28 and sometimes 29" (author unknown) 1. Calculate the cash discount offered and the amount paid as stated in the problems below: Item Invoice Amount Invoice Date Discount terms Date Pald Amount Pald a $1,790 1/10, n/30 3/1 3/10 $1,772.10 b. $7,194 2/10, n/30 3/28 4/17 $7,050 2. A distributor is invoiced for $58,000 with discounts of 2/10,n/30, on July 28. The bill is paid on August 8". How much should be paid? $8.000 3. A distributor purchased grinding wheels and was invoiced for $2,303.28 with terms of 2/10, 1-1/2, 20. n/30. The invoice was dated May 22 and payment was made on June 2ed. What is the net amount of the payment? 2.268.7 4. The Clark Distributors ship purchased electronic components and received an invoice for $7,800 on October 21" with terms of 3/10, 2/30, n/60. They paid the full amount of the bill less the discount on November 1" a. What was the amount of the discount in dollars? $150 b. What should be the amount paid? $7.644 c. If payment is made October 31", what discount can be taken? $234

Answer 1

Answer 1 (b)

If the payment is made in next 10 days, the discount will be 2%, i.e. 2/10 and if payment is made after 10 days, no discount is offered. In this case (b) the invoice date is March 28, and payment is made on 7 April in the next month. So, 3 days in March (29, 30 and 31) and 7 days in April is exactly 10 days. The payment is made in 10 days and discount of 2% is available.

Discount Amount = 7194 $\times$ 2% = $143.88

Amount Paid after discount= 7,194 - 143.88 = $7,050.12 or $7,050

2. The date of invoice is 28 July and the payment is made on 8 August. The payment is made on 11th day. In July 3 days and in August 8 days. As the payment is made after 10 days, no discount is available. Full amount of invoice $58,000 should be paid.

3. The invoice is dated 22 May and the payment is made on 2 June. The payment is made on 9th day. In May 7 days and in June 2 days. As the payment is made within 10 days, 2% discount is available.

Discount Amount = 2,303.28 $\times$ 2% = $46.07

Amount Paid after discount= 2,303.28 - 46.07 = $2,257.21 or $2,257

4. The invoice is dated 21 October and the payment is made on 1 November.. The payment is made on 11th day. In October 10 days and in Nov. 1 day. As the payment is made after 10 days, 2% discount is available in stead of 3%.

a) Amount of Discount in Dollars = 7,800 $\times$ 2% = $156

b) Amount that should be paid = $7,800 - $156 = 7,644

c) If payment is made on 31 October, that is 10th day, 3% discount can be taken and the amount of discount will be $234.

5. (a)

List Price of 10 Monitors (10 $\times$ $150) = $1,500

Rate of Trade Discounts = d1 = 18%; d2 = 22%

Net Price = List Price (1- d1) (1- d2)

= $1,500 (1-0.82) (1- 0.72) = $ 959.4

So, Invoice Price is $959.4

If the payment is made on 14 May, 3% discount can be taken as payment is made within discount period of 10 days from May 4.

Amount paid is = Net Price - Net Price $\times$ Cash discount rate

= $959.4 - $959.4 $\times$ 0.03 = $930.62

b) List price = $1,500,

Trade Discount = List Price - Trade discount = $1,500 - 959.4 = $540.6

Single Multiplier Rate = Trade Discount $\div$ List Price

= 540.6 $\div$ 1,500 = 0.3604

c)