- This topic has 1 reply, 2 voices, and was last updated 13 years ago by
.
- Posts
Mountain sells goods on credit to Hill. Hill receives a 10% trade discount from Mountain and a
further 5% settlement discount if goods are paid for within 14 days. Hill bought goods with a list
price of $200,000 from Mountain. Sales tax is at 17.5%.
What amount should be included in Mountain’s receivables ledger for this transaction?
A $235,000
B $211,500
C $200,925
D $209,925The correct answer is D but as from my judgement it should have been C .
List price 200.00 , trade discount 10% this means final price = 180.000 . Sales tax 180.000*17.5% total invoice = 211.500 , discount 5 % = 200.925 .
There is no way of knowing that the company will beneficial from the 5 % discount ahead of time. We need to make the invoice first and if the payment follow under the %% discount rule we make the discount. This is my judgement.
Can somebody pls explain to me what is wrong with my judgement and why the correct answer for this is 209.925. I don’t understand .kaplan text says, settlement discounts are always assumed to be taken for sales tax purposes as the sales tax needs to be calculated on the invoice immediately.
i.e., they assume that their invoice is paid within 14 days, that is the rule. the text book didnt discuss what if they didnt pay in time.
- You must be logged in to reply to this topic.