Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice price of $ 24,000 and credit terms of 3/10, n/60. The merchandise had cost Mesa $ 16,000. Santa Fe paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.
1. Prepare entries that the buyer should record for
(a) The purchase
(b) The cash payment.
2. Prepare entries that the seller should record for
(a) The sale
(b) The cash collection.
3. 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 8% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Assume a 365-day year and round dollar amounts to the nearest cent, including computation of interest per day.)

  • CreatedNovember 26, 2013
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