Exhibit 7-2
Edwards Co. purchased raw materials with a cost of $95,000 on March 2, 2015. Credit terms of 3/20, n/60 applied.
-Refer to Exhibit 7-2. If Edwards uses the net method and pays for the purchase on March 18, 2015, what amount is recorded in the Purchase Discounts Taken account?
A) $0
B) $2,850
C) $5,000
D) $3,000

Question

Quizplus · Accepted Answer

Using the net method, the purchase is initially recorded at its net amount (after discount) rather than the gross amount. Since the payment is made within the discount period, the discount is taken immediately upon purchase. Therefore, no amount is recorded in the Purchase Discounts Taken account when the payment is made, because the discount was already accounted for at the time of purchase.

Exhibit 7-2 Edwards Co. Purchased Raw Materials with a Cost of $95,000