Exhibit 8-2 Walters Co.purchased raw materials with a catalog price of $70, 000 on March 2, 2010.Credit terms of 4/20, n/60 applied.Walters uses a perpetual inventory system and the net price method.
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Refer to Exhibit 8-2.If Walters pays for the purchase on March 31, 2010, what amount is recorded in the purchase discounts lost account?
A)$ 0
B)$ 2, 800
C)$14, 000
D)$28, 000

Question

Quizplus · Accepted Answer

The credit terms of 4/20, n/60 means that Walters can receive a 4% discount if they pay within 20 days, otherwise the entire amount is due within 60 days. 
If Walters pays on March 31, they are outside of the 20-day discount period, so they do not qualify for the discount. The amount of the discount would have been $2,800 (4% of $70,000), so this amount is recorded in the purchase discounts lost account. Therefore, the answer is (B) $2,800.