On March 1, 2014, Sundown Company purchased merchandise for resale from Raintree with an invoice price of $10,000 and credit terms of 3/10, n/60. The merchandise had cost Raintree $8,000. Sundown paid on March 11. Assume that both the buyer and seller use perpetual inventory systems.
Required
a. Prepare the entries that the purchaser should record for the purchase and payment.
b. Prepare the entries that the seller should record for the sale and collection.
Analysis Component:
Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 3% and paid it back on the last day of the credit period. Calculate how much the buyer saved by following this strategy. Use a 365-day year and round all calculations to the nearest whole cent.