Shock Company Purchased Merchandise from Mee Company with an Invoice

question 169

Essay

Shock Company purchased merchandise from Mee Company with an invoice price of $300,000 and credit terms of 2/10, n/30. The merchandise had cost Mee Company $200,000. Shock Company 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 and (b) the cash payment.
2. Prepare entries that the seller should record for (a) the sale and (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 9% 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.)

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Definitions:

Conversational Tone

The manner of expression in common business communication; it employs straightforward language that is professional yet not overly formal or excessively casual.

Response Time

The duration it takes for a system or individual to react to a given stimulus or request.

Podcasting Channel

Series of regular recordings on a consistent theme.

Audience Guessing

The act of trying to predict the reactions, preferences, or interests of an audience without direct feedback.