Exhibit 7-2 Edwards Co. purchased raw materials with a cost of $95,000 on March 2, 2014. 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 31, 2014, what amount is recorded in the Purchase Discounts Lost account?
A) $0
B) $2,850
C) $4,000
D) $8,000

Question

Quizplus · Accepted Answer

Using the net method, Edwards Co. would take the purchase price of $95,000 and subtract the discount of 3% (since they did not pay within the discount period) which equals $2,850. This amount would be recorded in the Purchase Discounts Lost account. Therefore, the correct answer is choice B.