Question

During the months of January and February, Axe Corporation purchased goods from three suppliers. The sequence of events was as follows:

Jan. 6 Purchased goods for $1,300 from Green with terms 3/12, n/45.

6 Purchased goods from Munoz for $950 with terms 3/12, n/45.

14 Paid Green in full.

Feb. 2 Paid Munoz in full.

28 Purchased goods for $400 from Reynolds with terms n/45.

Required: Assume that Axe uses a perpetual inventory system, the company had no inventory on hand at the beginning of January, and no sales were made during January and February. Calculate the cost of inventory as of February 28.

Answer 1

Computation of Cost of inventory for AXE corporation

Particulars	Amount
Total purchases from Green, Munoz and Reynolds ($1300+ $950+ $400)	$2650
Less: Discount received from Green ($1300 X 3%)	($39)
Cost of inventory as of February 28	$2611

Note
'3/12' as said in above cases means that if payment for purchases are made with 12 days of purchase then 3% discount will be given by supplier. Above we see that Green was paid within 8 days of purchase so Green gave 3% discount on $1300 purchases. But since Munoz was paid after 28 days, therefore no 3% discount was given. and since from Reynolds, purchase was made on Feb 28 with no payment on that date, so discount will not be given from Reynolds as well.