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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Dixon Menswear Shop purchased shirts from Colt Company on May 28, 2019, and received an invoice with a list price amount of $5,000 and payment terms of 2/10, n/30. Dixon uses the net method to record purchases. Dixon should record purchases of:

  1. a. $4,000
  2. b. $4,900
  3. c. $5,000
  4. d. $5,100

To determine

Calculate the value of purchases that should be recorded by Shop DM under net purchases method.

Explanation

Net method: Under net method, sales and purchases of merchandises are recorded at the net invoice price which means the discounts are deducted from the gross invoice price.

Compute the discount on purchases.

Credit terms: The credit terms are 2/10,n/30. Shop DM is entitled to a discount of 2%.

Compute the net invoice price of purchases.

Net invoice price=Gross Invoice price(Invoice price×Discount rate

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