Question

1) M. Freeman received an invoice from D. Wayans Automotive Parts. The invoice stated the total of $52,000 for twelve pairs of Corvette fenders with the terms 2/10, n/30 printed at the bottom.

If Mr. Freeman wishes to take advantage of the discount associated with this item, how much and by when does he need to pay?

	A.	$50,960 must be paid within 30 days
	B.	$44,200 must be paid within 30 days
	C.	$50,960 must be paid within 10 days
	D.	$47,628 must be paid within 15 days

2)    Please use the information in the preceding question regarding M. Freeman's purchase of auto parts from D. Wayans.

If Freeman utilizes the perpetual inventory method and pays their invoice, utilizing the discount noted in the terms, what would be the journal entry to record the payment?

*none of the goods were returned prior to payment and the seller paid for all shipping.

M. Freeman Automotive Repair
Item	Account Name	Post Ref	Debit	Credit
1.	Cash		$52,000
	Merchandise Inventory			$52,000
2.	Accounts Payable		$52,000
	Merchandise Inventory			$1,040
	Cash			$50,960
3.	Accounts Payable		$44,200
	Cash			$36,400
	Discount on Accounts Payable			$7,800
4.	Accounts Payable		$44,200
	Cash			$44,200

	A.	Item # 1 is the correct journal entry
	B.	Item # 4 is the correct journal entry
	C.	Item # 3 is the correct journal entry
	D.	Item # 2 is the correct journal entry

Answer 1

Question 1:-

Based on the information available in the question, we can calculate the answer as follows:-

The terms 2/10, n/30 means that a customer would be eligible for 2 percent discount if he/she pays the amount within 10 days.

Hence, the customer has to pay the amount due within 10 days. The advantage of taking the discount for the customer is calculated as :-

$52,000 * 2% = $1,040

The net amount that the customer would be bound to pay = $52,000 - $1,040 = $50,960

Based on the above considerations, the correct answer is Option C - $50,960 must be paid within 10 days

Option A is incorrect as the 30 days represent the total amount that should be paid for the transactions within the 30 days time frame.

Option B is incorrect as $44,200 is incorrect based on the above calculation.

Option D is incorrect as the customer needs to pay within 10 days in order to avail the discount based on the above explanation.

Kindly post the remaining question separately so that we can answer them as well. All the best and please let me know if you have any questions via comments :)