Question

Precision Musical Instruments, merchandisers of musical instruments, has provided the following details Mar. 5 Inventory purchased on account Freight in Purchase returns $775,000 Mar. 8 45,000 Mar. 13 50.000 Mar. 14 Allowanoes by vendor 15,000 Mar. 20 Payment made to vendor for purchases on March 5 Credit terms are: 3/20, n/45, FOB shipping point. Calculate the net cost of inventory purchased assuming that there are no other inventory-related transactions during the month. Assume that the perpetual inventory system is used. O A. $732,350 O B. $760,000 O C. $710,000 O D. $733,700

Answer 1

Inventory purchased on account = $775,000

Freight in = $45,000

Purchase returns = $50,000

Allowance by vendor = $15,000

Final amount due = Inventory purchased on account - Purchase returns - Allowance by vendor

= 775,000 - 50,000 - 15,000

= $710,000

Purchase discount = Final amount due x Discount rate

= 710,000 x 3%

= $21,300

Net cost of inventory purchased = Inventory purchased on account + Freight in - Purchase returns - Allowance by vendor - Purchase discount

= 775,000 + 45,000 - 50,000 - 15,000 - 21,300

= $733,700

Correct option is (D)

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