Precision Musical Instruments,merchandisers of musical instruments,has provided the following details: $$\begin{array} { | l | l | r | }
\hline \text { Mar. 5 } & \text { Inventory purchased on account } & \$ 775,000 \
\hline \text { Mar. 8 } & \text { Freight in } & 45,000 \
\hline \text { Mar. 13 } & \text { Purchase returns } & 50,000 \
\hline \text { Mar. 14 } & \text { Allowances by vendor } & 15,000 \
\hline & \text { Payment made to vendor for purchases on } & \
\text { Mar. 20 } & \text { March 5 } & ?\
\hline
\end{array}$$ Credit terms are: 3/20,n/45,FOB shipping point.Calculate the net cost of inventory purchased assuming that there are no other inventory-related transactions during the month.Assume that the perpetual inventory system is used.
A) $760,000
B) $732,350
C) $710,000
D) $733,700

Question

Precision Musical Instruments,merchandisers of musical instruments,has provided the following details: $$\begin{array} { | l | l | r | } 
\hline \text { Mar. 5 } & \text { Inventory purchased on account } & \$ 775,000 \
\hline \text { Mar. 8 } & \text { Freight in } & 45,000 \
\hline \text { Mar. 13 } & \text { Purchase returns } & 50,000 \
\hline \text { Mar. 14 } & \text { Allowances by vendor } & 15,000 \
\hline & \text { Payment made to vendor for purchases on } & \
\text { Mar. 20 } & \text { March 5 } & ?\
\hline
\end{array}$$ Credit terms are: 3/20,n/45,FOB shipping point.Calculate the net cost of inventory purchased assuming that there are no other inventory-related transactions during the month.Assume that the perpetual inventory system is used.
A) $760,000
B) $732,350
C) $710,000
D) $733,700

Quizplus · Accepted Answer

The net cost of inventory purchased is calculated as follows: Initial purchase of $775,000 + Freight in of $45,000 - Purchase returns of $50,000 - Allowances of $15,000 = $755,000. Then, applying the discount for early payment (3% of $755,000) gives $22,650. So, $755,000 - $22,650 = $732,350. However, the freight in cost should not be reduced by the discount because it's a separate expense related to shipping, not subject to purchase discounts. Therefore, the correct calculation is initial purchase minus returns and allowances ($775,000 - $50,000 - $15,000 = $710,000), then apply the discount ($710,000 * 3% = $21,300), and finally add the freight in ($710,000 - $21,300 + $45,000 = $733,700).

Precision Musical Instruments,merchandisers of Musical Instruments,has Provided the Following Details