Question

Hunter Company purchased inventory with an invoice price of $4,000 and credit terms of 2/10,n/30. Before settling their account, Hunter received credit from their supplier for inventory returned $200. What is the amount Hunter Company would pay for this inventory if they settle their account within the discount period?

Answer 1

"Recording purchases of inventories" – Credit terms of 2/10, n/30 means that a 2% cash discount may be taken on the invoice price if payment is made within 10 days of the invoice date; otherwise the invoice price is due 30 days from the invoice date ($4,000 x .98 = $3,920).

Inventory $ 4000

A/P $ 4000

$200 of Inventory purchased is returned prior to payment.

A/P $ 200

Inventory $200

When the invoice is paid within the discount period

$4000 purchase - $200 return = $3800 * 2% = $76 discount

$3800 owed - $76 discount = $3724 paid

A/P 3800

Cash 3724

  Inventory 76.