Question

Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. The Pound Co. paid the invoice within the discount period. What is the sales amount to be recorded in the above transactions?
a. $25,500
b. $26,010
c. $24,990
d. $16,000

Answer 1

Answer:

C) $24,990

Explanation:

The sales terms 2/15, n/45 mean:

• if the buyer pays his invoice before a 15 day period, he will receive a 2% discount over the total amount of the debt (2% x $25,500 = $510)
• if the buyer is not able or willing to pay his invoice before the 15 day period, he must pay the full amount of the invoice (no discount) before a 45 day period ends.

Since the buyer paid the invoice within the discount period, he will pay:

$25,500 - $510 = $24,990

Answer 2

Answer:$25,500

Explanation:

This is a cash discount giiven to customer to encourage prompt payment. It's not deductible from sales but debited to income statement as discount allowed