Taos Company purchased merchandise for resale from Tuscon Company with
an invoice price of $22,000 and credit terms of 3/10, n/60. The
merchandise had cost Tuscon $15,000. Taos paid within the discount
period. Assume that both buyer and seller use a perpetual inventory
system.
Required:
1)
a) Prepare entries that the buyer should record for the purchase.
b) Prepare entries that the buyer should record for the cash payment.
2
a) Prepare entries that the seller should record for the sale.
b) Prepare entries that the seller should record for the cash collection.
3. Assume that the buyer borrowed enough cash to pay the
balance on the last day of the discount period at an annual interest
rate of 11% and paid it back on the last day of the credit period.
Compute how much the buyer saved by following this strategy.
