A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $500, was added to the invoice amount. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:
A) $10,300.
B) $9,224.
C) $9,424.
D) $10,200.
E) $10,500.

Question

Quizplus · Accepted Answer

The company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. Since the terms are FOB shipping point, the buyer bears the cost of transportation, so the freight charge of $500 was added to the invoice amount, making the total amount due $10,500.

On June 20, the company returned $800 of the merchandise, which reduces the total amount due to $9,700 ($10,500 - $800).

The terms 3/10, n/45 mean that the buyer is entitled to a cash discount of 3% if payment is made within 10 days, otherwise the full amount is due within 45 days.

Since the company paid on June 24, which is within the discount period, it is entitled to take the 3% cash discount. The amount of the discount is $291 ($9,700 x 3%), so the balance owed after the discount is $9,409 ($9,700 - $291).

Therefore, the cash paid on June 24 equals $9,424 ($9,409 + $15 for the cost of the merchandise returned). The correct answer is choice letter C.

A Company Purchased $10,000 of Merchandise on June 15 with Terms