PE 6-4A Freight terms

Determine the amount to be paid in full settlement of each of invoices (a) and (b), assuming
that credit for returns and allowances was received prior to payment and that all
invoices were paid within the discount period.

                                       Freight                                                             Returns and
           Merchandise   Paid by Seller               Freight Terms                      Allowances
a.           $120,000          $5,000           FOB shipping point, 1/10, n/30         $15,000
b.             90,000             1,000            FOB destination, 2/10, n/30                2,000

Answer:
a. $108,950. Purchase of $120,000 less return of $15,000 less the discount of $1,050 [($120,000 – $15,000) × 1%] plus $5,000 of shipping.
b. $86,240. Purchase of $90,000 less return of $2,000 less the discount of $1,760 [($90,000 – $2,000) × 2%].