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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
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.

1.

To determine

Explain whether B’s attempts to extend discount period is unethical.

Explanation

Facts of the case: A Warehouse offers cash discount of 2% to all its customers, if they paid the invoice within 10 days. But B, the owner of DA Parts, pays the invoice after 15 to 20 days, yet pays invoice minus the purchase discounts. A Warehouse reminded DA Parts that the discount could be availed by the buyer, only if he pays the invoice within 10 days. Next time when B made a purchase, he wrote the check dated 10 days within the purchase but failed to mail the check...

2.

To determine

Indicate few alternatives A Warehouse could take to prevent the extension of B’s discount period.

3.

To determine

Explain cash discounts and credit terms.

4.

To determine

List the advantages and disadvantages of offering cash discount.

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