Streak Merchandising Company expects to purchase $60,000 of materials in July and $70,000 of materials in August.Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase.In addition, a 2% discount is received for payments made in the month of purchase.How much will cash disbursements for materials purchases be in August?
A)$44,100
B)$54,100
C)$66,450
D)$60,000

Question

Quizplus · Accepted Answer

- Purchases in August = $70,000
- 75% of August purchases ($52,500) will be paid in August with no discount
- 25% of August purchases ($17,500) will be paid in September with no discount
- However, there is a 2% discount for payments made in the month of purchase, so Streak Merchandising will receive a discount of 2% x $52,500 = $1,050 for payments made in August.
- Therefore, the total cash disbursements for materials purchases in August will be $52,500 (amount to be paid with no discount) + $17,500 (amount to be paid in September) - $1,050 (discount received for payments made in August) = $66,450.

Streak Merchandising Company Expects to Purchase $60,000 of Materials in July