Question

Random Company estimated that its inventory purchases for January and February 2012 would be $600,000 and $700,000, respectively. The company generally pays for 70% of its inventory purchases in the month of purchase because it receives a 2% discount for timely payment. The remaining 30% of purchases are paid for in the following month, and there is no discount for these payments. What will be the amount of cash payments for inventory in February 2012?

Answer 1

Total Payment in February 2012 - $660,200

Below is the Calculations:

Inventory purchases for January 2012	$600,000
Payment in January 2012 (600,000*70%*98%)	$411,600
Balance Payable as on 31st January 2012( $600000*30%)	$180,000
Inventory purchases for February 2012	$700,000
Payment in February 2012 :
(600,000*30%)	$180,000
(700,000*70%*98%) *	$480,200
Total Payment in February 2012	$660,200

* 2 % Discount for same month payment. So the net payment is 98% (100%-2%)