Question

T Tennis Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period. If required, round the answers to the nearest dollar. Merchandise Freight Paid by Seller Freight Terms Returns and Allowances $5,050 $700 FOB destination, 2/10, n/30 $1,700 3,400 300 FOB shipping point, 1/10, n/30 700

Answer 1

First we will understand difference between FOB shipping point and FOB destination.

FOB shipping point:

It means that title of goods transfer from buyer to seller at the time of shipping of goods.

Shipping cost is to be borne by buyer.

FOB destination:

It means that title of goods transfer from buyer to seller at the time of shipping of goods.

Shipping cost is to be borne by seller.

(a) 2/10,n/30

it means that if the payment is made within 10 days of invoice than 2% discount is provided by seller.

purchase price after return and discount

=($5,050-$1,700)*98%

=$3,283

[note that as the terms are FOB destination, no shipping cost would be added]

(b) 1/10,n/30

1% discount is provided if payment is made within 10days.

(Purchase price - return) *(1-discount rate) + shipping cost

=($3,400-$700)*(1-0.01)+$300

=$2,973

a	$3,283
b	$2,973