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From the solutions:
List Price 480,000
Trade discount (48,000)
432,000
Sales tax (17.5% × 95% × 432,000) 71,820
503,820
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Hello John,I think the result is wrong and it should be 482,220 $
Price 480,000 – Disc of 10% = 432,000
To 432,000 we apply another discount of 5% = 21,600 = 410,400Now we apply the tax of 17,5% which is 71,820.
Therefore, receivables will be 71,820+410,400= 482,220
Am I right?
Thank you
No, you are not right.
We don’t know until they pay whether or not they will get the discount for early payment of 5%. So until they pay we have to show this as being part of receivables.
So total receivables will be 432,000 + 71,820 = 503,820.
(The sales tax remains at 71,820 whether or not they get the cash discount).
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