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 31, 2015, 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

Under the net method, the purchase is initially recorded net of the discount. The discount is 3% of $95,000, which is $2,850. Since the payment is made after the discount period, the discount is lost and recorded in the Purchase Discounts Lost account.

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