Question

1. A buyer of $7,700 in merchandise inventory failed to take advantage of the vendor's credit terms of 3/15, n/45, and instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the discount of:

100

77

1155

770

231

2. Cushman Company had $818,000 in sales, sales discounts of $12,270, sales returns and allowances of $18,405, cost of goods sold of $388,550, and $281,395 in operating expenses. Net income equals:

787,325

117,380

398,775

178,730

148,055

Answer 1

1) The credit terms 3/15 means that 3% discount if payment is made within 15 days from the date of invoice.

In the given case the payment is made at the end of 45 days, hence the advantage of cash discount is lost. The amount of cash discount lost is calculated as follows:-

Cash Discount = Sale Price*3% = $7,700*3%

= $231

Therefore the buyer lost the discount of $231, hence the correct option is E) $231.

2) Calculation of Net Income (Amounts in $)

Sales	818,000
Less: Sales discounts	(12,270)
Less: Sales returns and allowances	(18,405)
Net Sales		787,325
Less: Cost of goods sold		(388,550)
Gross Margin		398,775
Less: Operating Expenses		(281,395)
Net Income		117,380

Therefore the net income is $117,380. Hence the correct option is B) $117,380.