Question

During the months of January, Ava Corporation purchased goods from two suppliers. The sequence of events was as follows: Jan. 6 Purchased goods for $1,590 from Noah with terms 2/10, n/30. 6 Purchased goods from Emma for $1,020 with terms 2/10, n/30. 14 Paid Emma in full. 30 Paid Noah in full. At the end of January, how will Ava's inventory increase by?

Answer 1

On January 6, goods of $1,020 were purchased from Emma with terms 2/10,n/30, which means 2% discount will be allowed if payment is made within 10 days of purchase. Since payment to Emma was made on 14th January ( Within 10 days), hence discount of 2% will be allowed.

Discount from Emma = Purchase price x Discount rate

= 1,020 x 2%

= $20.40

Cash to be paid to Emma = Purchase price - Discount

= 1,020-20.40

= $999.60

Hence, on January 14, credit to cash will be = $999.60.

On January 6, goods of $1,590 were purchased form Noah with terms 2/10,n/30 on which 2% discount was applicable only if payment would be made with in 10 days of purchase.But payment to Noah was made on January 30 i.e. after discount period, hence no discount will be allowed on the payment.

At the end on January, inventory will increase by = Net cost of goods purchased from Emma + Cost of goods purchased from Noah

= 999.60+1,590

= $2,589.60

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