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Bob’s Discount Auto Parts receives a cash discount of 2% from Auto Warehouse if it pays an invoice within 10 days. Bob, the owner, consistently sends payments 15 to 20 days after receiving the invoice and still deducts the amount of the discount. Last week, Bob received a call from Auto Warehouse reminding him that in order to get the discount, an invoice must be paid with in 10 days. When Bob received the next invoice, he dated the check exactly 10 days from the date of the invoice but didn’t mail the check for another week. The receivables manager from Auto Warehouse called Bob and again reminded him that the check should be mailed by the 10th day in order to receive the 2% discount. When Bob received the next invoice, he mailed it on time but post-dated the check for the following week. 1. Are Bob’s attempts to extend the discount period unethical? 2. What alternatives can Auto Warehouse take to prevent Bob's Discount Auto Parts from stretching the discount period? 3. Write a short note from Auto Warehouse to Bob’s Discount Auto Parts explaining cash discounts and credit terms. 4. In small groups, make a list of the advantages and disadvantages of offering cash discounts.

BuyFind

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
Publisher: Cengage Learning,
ISBN: 9781337794756
BuyFind

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
Publisher: Cengage Learning,
ISBN: 9781337794756

Solutions

Chapter
Section
Chapter 11, Problem 1EC
Textbook Problem

Bob’s Discount Auto Parts receives a cash discount of 2% from Auto Warehouse if it pays an invoice within 10 days. Bob, the owner, consistently sends payments 15 to 20 days after receiving the invoice and still deducts the amount of the discount. Last week, Bob received a call from Auto Warehouse reminding him that in order to get the discount, an invoice must be paid with in 10 days. When Bob received the next invoice, he dated the check exactly 10 days from the date of the invoice but didn’t mail the check for another week. The receivables manager from Auto Warehouse called Bob and again reminded him that the check should be mailed by the 10th day in order to receive the 2% discount. When Bob received the next invoice, he mailed it on time but post-dated the check for the following week.

  1. 1. Are Bob’s attempts to extend the discount period unethical?
  2. 2. What alternatives can Auto Warehouse take to prevent Bob's Discount Auto Parts from stretching the discount period?
  3. 3. Write a short note from Auto Warehouse to Bob’s Discount Auto Parts explaining cash discounts and credit terms.
  4. 4. In small groups, make a list of the advantages and disadvantages of offering cash discounts.

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Chapter 11 Solutions

College Accounting, Chapters 1-27
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