Assume the perpetual inventory system is used.1)Green Company purchased merchandise inventory that cost $16,600 under terms of 2/10, n/30 and FOB shipping point.2)Green Company paid freight cost of $660 to have the merchandise delivered.3)Payment was made to the supplier on the inventory within 10 days.4)All of the merchandise was sold to customers for $24,700 cash and delivered under terms FOB destination with freight cost amounting to $460. What is the net cash flow from operating activities that results from these transactions?

Question

Quizplus · Accepted Answer

1) Cost of merchandise inventory = $16,600
2) Freight cost paid = $660
Total cost = $16,600 + $660 = $17,260
3) Discount received for paying within 10 days = $16,600 x 2% = $332
Amount paid to supplier = $16,600 - $332 = $16,268
4) Revenue earned from selling merchandise = $24,700
Freight cost incurred for delivery = $460
Net revenue = $24,700 - $460 = $24,240
Net cash flow from operating activities = Net revenue - Total cost
= $24,240 - $17,260
= $6,980
However, since the discount received for paying within 10 days is a cash inflow from operating activities, the net cash flow from operating activities will be:
= $6,980 + $332
= $7,312 inflow.

Assume the Perpetual Inventory System Is Used