Answer to Question #213158 in Accounting for zuby

Question

Montez Muffins and More is a bakery located in New York. Montez purchases a great deal of flour in bulk from a wholesaler. The wholesaler offers purchase discounts for fast payment. Montez purchased 600 pounds of flour for $100 on May 1, under terms 2/10 n/30. Determine the amount Montez should pay under the following scenarios:

1.

Montez pays the full balance on May 25.

2.

Montez pays the full balance on May 10.

3.

Montez pays half the balance on May 10 and half on May 25.

Answer 1

Date of purchase is May 1.

Total purchases amount = $0.20 x 600 = $120

Terms is 2/10, n/30. That means if the amount is paid within 10 days from the date of purchases MM&M will get a 2% discount. If the amount is paid after 10 days from the date of purchase, MM&M will not get any discount.

a)

MM&M pays the full balance on May 25.

In this case, MM&M will not get any discount because it did not pay within 10 days from the date of purchase.

Therefore, MM&M will have to pay $120.

b.

MM&M pays the full balance on May 7.

In this case, MM&M will get a discount of 2% because it paid within 10 days from the date of purchase.

Discount received by MM&M = $120 x 2% = $2.40

Therefore, MM&M will have to pay $117.60.

c.

MM&M pays half the balance on May 7 and half on May 18.

In this case, MM&M will get 2% discount on half the balance that is $60 because it is paid within 10 days from the date of purchase and no discount on the other half $60 because it was paid after 10 days from the date of purchase.

Discount received by MM&M = $60 x 2% = $1.20

Therefore, MM&M will pay $118.80.