77) Idaho Company made the following purchases during the month of October.
October 6
Purchased $15,000 of merchandise, terms 2/10, n/30, FOB destination, freight cost $100
October 14
Purchased $12,000 of merchandise, terms 2/15, n/60, FOB shipping point, freight cost $100
October 22
Purchased $18,000 of merchandise, terms 3/10, n/20, FOB destination, freight cost $100
October 31
Purchased $20,000 of merchandise, terms 1/15, n/45, FOB shipping point, freight cost $100
Required:
1. Complete the chart below for each of the four purchases.
Oct. 6
Oct. 14
Oct. 22
Oct. 31
a. due date, assuming the
discount is taken
b. last day to pay if the
discount is NOT taken
c. amount of discount
$
$
$
$
d. freight cost paid by
Idaho Company
$
$
$
$
2. Assuming that the selling company accepts all discounts, what is the total cost of purchases for the month?
78) Tiny Toy Company makes toys and sells them to retail stores on account. The company has a December 31 year-end. In the past, Tiny Toy always sold on account but never offered sales discounts to its customers. However, this year on November 1, the beginning of the holiday sales season, Tiny Toy began offering stores terms of 2/90, n/120. The stores can return anything, no questions asked, but only after December 31.
Required:
A. Why would Tiny Toy offer such a liberal credit and return policy?
B. Put an X in the appropriate box to describe the effect of this credit and return policy on Tiny Toy’s financial statements for this year.
Financial statement item
Increase
Decrease
No effect
Sales
A/R
Inventory
C. Is Tiny Toy’s new credit and return policy ethical?
79) For each of the purchases below made by Daily Grind, Inc., fill in the inventory amount net of discounts, and then indicate with an “X” whether you should include or exclude the purchase from Daily Grind’s inventory balance at December 31.
Daily Grind purchased ON DECEMBER 31:
Amount
Include
Exclude
1. $5,000 of merchandise; terms 2/10, n/30,
FOB shipping point. The shipping cost $500.
The merchandise arrived on Jan. 2.
2. $8,000 of merchandise; terms 1/10, n/15,
FOB destination. The shipping cost $80.
The merchandise arrived on Jan 1.
80) Big Company has a policy of always taking the cash discounts offered by vendors, even if it doesn’t pay within the discount period. Big Company thinks that many of the vendors won’t notice, or if they do notice won’t bother to send another bill for a small amount.
On May 5, Big Company bought $5,000 of merchandise from Little Company, terms 2/10, n/30, FOB destination. Freight on the shipment was $40.
A. How many days does Big Company have to pay the bill and legitimately take the discount?
B. If Big Company pays within the discount period, how much should it pay Little Company?
C. Who should pay the freight on the shipment, Big Company or Little Company?
D. Is it ethical for Big Company to take the cash discount even though it does not pay within the discount period?
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