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Purchases discounts and accounts payable Rustic Furniture Co. is owned and operated by Cam Pfeifer. The following is an excerpt from a conversation between Cam Pfeifer and Mitzi Wheeler, the chief accountant for Rustic Furniture Co: Cam: Mitzi, i've got a question about this recent balance sheet Mitzi: Sure, what's your quest on? Cam: Well, as you know. I'm applying for a bank loan to finance our new store in Garden Grove, and I noticed that the accounts payable are listed as $320,000. Mitzi: That's right. Approximately $275,000 of that represents amounts due our suppliers, and the remainder is miscellaneous payables to creditors for utilities, office equipment supplies, etc Cam: That's what I thought. But as you know, we normally receive a 2% discount from our suppliers for earlier payment, and we always try to take the discount Mitzi: That's right I can't remember the last time we missed a discount. Cam: Well, in that case, it seems to me the accounts payable should be listed minus the 2% discount Let's list the accounts payable due suppliers as $314,500. rather than $320,000. Every little bit helps. You never know. It might make the difference between getting the loan and not. How would you respond to Cam Pfeifer’s request?

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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Chapter
Section
BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 5, Problem 5.2CP
Textbook Problem
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Purchases discounts and accounts payable

Rustic Furniture Co. is owned and operated by Cam Pfeifer. The following is an excerpt from a conversation between Cam Pfeifer and Mitzi Wheeler, the chief accountant for Rustic Furniture Co:

Cam: Mitzi, i've got a question about this recent balance sheet

Mitzi: Sure, what's your quest on?

Cam: Well, as you know. I'm applying for a bank loan to finance our new store in Garden Grove, and I noticed that the accounts payable are listed as $320,000.

Mitzi: That's right. Approximately $275,000 of that represents amounts due our suppliers, and the remainder is miscellaneous payables to creditors for utilities, office equipment supplies, etc

Cam: That's what I thought. But as you know, we normally receive a 2% discount from our suppliers for earlier payment, and we always try to take the discount

Mitzi: That's right I can't remember the last time we missed a discount.

Cam: Well, in that case, it seems to me the accounts payable should be listed minus the 2% discount Let's list the accounts payable due suppliers as $314,500. rather than $320,000. Every little bit helps. You never know. It might make the difference between getting the loan and not.

How would you respond to Cam Pfeifer’s request?

To determine

Purchase discount is the amount received as concession by the seller to the buyer for making early payments.

To Discuss: The response to Mr. C’s request.

Explanation of Solution

Mr. C is correct. The net value of accounts payable that reported on the balance sheet should be the deducted value after the 2% discount. The net value shows the exact obligation to the suppliers. However, the exact obligation is proper only when the company maintains all the purchase discounts in appropriate accounting system...

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Chapter 5 Solutions

Financial & Managerial Accounting
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Ch. 5 - Gross profit During the current year, merchandise...Ch. 5 - Gross profit During the current year, merchandise...Ch. 5 - Purchases transactions Halibut Company purchased...Ch. 5 - Purchases transactions Hoffman Company purchased...Ch. 5 - Sales transactions Journalize the following...Ch. 5 - Sales transactions Journalize the following...Ch. 5 - Freight terms Determine the amount to be paid in...Ch. 5 - Freight terms Determine the amount to be paid in...Ch. 5 - Transactions for buyer and seller Sather Co. sold...Ch. 5 - Transactions for buyer and seller Shore Co. sold...Ch. 5 - Inventory shrinkage Castle Furnishings Company's...Ch. 5 - Inventory shrinkage Hahn Flooring Company's...Ch. 5 - Ratio of safes to assets Financial statement data...Ch. 5 - Ratio of sales to assets Financial statement data...Ch. 5 - Determining gross profit During the current year,...Ch. 5 - Determining cost of merchandise sold For a recent...Ch. 5 - Purchase-related transactions The Stationery...Ch. 5 - Purchase-related transactions A retailer is...Ch. 5 - Purchase-related transactions The debits and...Ch. 5 - Purchase-related transactions Warwick's Co., a...Ch. 5 - Purchase-related transactions Journalize entries...Ch. 5 - Sales-related transactions, including the use of...Ch. 5 - Customer returns and allowances Zell Company had...Ch. 5 - Sales-related transactions After the amount due on...Ch. 5 - Sales-related transactions The debits and credits...Ch. 5 - Sales-related transactions Merchandise is sold on...Ch. 5 - Determining amounts to be paid on invoices...Ch. 5 - Sales-related transactions Showcase Co., a...Ch. 5 - Purchase-related transactions Based on the data...Ch. 5 - chart of accounts Monet Paints Co. is a newly...Ch. 5 - Sales tax A sale of merchandise on account for...Ch. 5 - Sales tax transactions Journalize the entries to...Ch. 5 - Normal balances of merchandise accounts What is...Ch. 5 - Income statement and accounts for merchandiser a....Ch. 5 - Income statement for merchandiser The following...Ch. 5 - Determining amounts for items omitted from income...Ch. 5 - Multiple-step income statement On October 31,...Ch. 5 - Multiple-step income statement Identify the errors...Ch. 5 - Single-step income statement Summary operating...Ch. 5 - Adjusting entry for merchandise inventory...Ch. 5 - Closing the accounts of a merchandiser From the...Ch. 5 - Closing entries; net income Based on the data...Ch. 5 - Closing entries On July 31, 2016, the balances of...Ch. 5 - Ratio of sales to assets The Home Depot reported...Ch. 5 - Ratio of sales to assets Kroger, a national...Ch. 5 - Rules of debit and credit for periodic inventory...Ch. 5 - Journal entries using the periodic inventory...Ch. 5 - Identify items missing in determining cost of...Ch. 5 - Cost of merchandise sold and related items The...Ch. 5 - Cost of merchandise sold Based on the following...Ch. 5 - Cost of merchandise sold Based on the following...Ch. 5 - Cost of merchandise sold Identify the errors in...Ch. 5 - Closing entries using periodic inventory system...Ch. 5 - Purchase-related transactions using perpetual...Ch. 5 - Sales-related transactions using perpetual...Ch. 5 - Sales-related and purchase-related transactions...Ch. 5 - Sales-related and purchase-related transactions...Ch. 5 - Multiple step income statement and report form of...Ch. 5 - Single-step income statement and account form of...Ch. 5 - Appendix Purchase-related transactions using...Ch. 5 - Appendix Sales-related and purchase-related...Ch. 5 - Appendix Sales-related and purchase-related...Ch. 5 - Periodic inventory accounts, multiple-step income...Ch. 5 - Purchase-related transactions using perpetual...Ch. 5 - Sales-related transactions using perpetual...Ch. 5 - Sales-related and purchase-related transactions...Ch. 5 - Sales-related and purchase-related transactions...Ch. 5 - Multiple-step income statement and report form of...Ch. 5 - Single-step income statement and account form of...Ch. 5 - Appendix Purchase-related transactions using...Ch. 5 - Appendix Sales-related and purchase-related...Ch. 5 - Appendix Sales-related and purchase-related...Ch. 5 - Periodic inventory accounts, multiple-step income...Ch. 5 - Continuing problem Palisade Creek Co. is a...Ch. 5 - Ethics and professional conduct in business On...Ch. 5 - Purchases discounts and accounts payable Rustic...Ch. 5 - Determining cost of purchase The following is an...Ch. 5 - Sales discounts Your sister operates Watercraft...

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