Exhibit 7-1 Edwards Co. purchased raw materials with a cost of $95,000 on March 2, 2014. Credit terms of 3/20, n/60 applied. If Edwards pays for the purchase on March 18, 2014, calculate the amount recorded for inventory on March 2, 2014, using the method given.
-Refer to Exhibit 7-1. Edwards uses a perpetual inventory system and the net price method.
A) $42,000
B) $76,000
C) $92,150
D) $95,000

Question

Quizplus · Accepted Answer

Using the net price method:
Trade discount = 3%
Single equivalent rate (SER) = 100% - 3% = 97%
Amount payable = $95,000 x SER = $92,150

Since Edwards uses a perpetual inventory system, the cost of the raw materials is recorded as part of the inventory. Therefore, the amount recorded for inventory on March 2, 2014 is $92,150.