Locust Company purchased merchandise on account from a supplier for $34,900, terms 1/10, n/30.

A retailer is considering the purchase of 250 units of a specific item from either of two suppliers. Their offers are as follows:

Supplier One: $400 a unit, total of $100,000, 1/10, n/30, no charge for freight.

Supplier Two: $399 a unit, total of $99,750, 2/10, n/30, plus freight of $975.

Which of the two offers, Supplier One or Supplier Two, yields the lower price?


Answer:
The offer of Supplier Two is lower than the offer of Supplier One. Details are as follows:


Supplier One Supplier Two
List price $100,000 $99,750
Less discount 1,000 1,995
$ 99,000 $97,755
Freight 975
$ 99,000 $98,730






Locust Company purchased merchandise on account from a supplier for $34,900, terms 1/10, n/30. Locust Company returned $6,400 of the merchandise and received full credit.

a. If Locust Company pays the invoice within the discount period, what is the amount of cash required for the payment?

b. Under a perpetual inventory system, what account is credited by Locust Company to record the return?


Answer:
a. $28,215 {Purchase of $34,900, less return of $6,400, less discount of $285 [($34,900 – $6,400) × 1%]}

b. Merchandise Inventory