Question

Dixon Menswear Shop regularly buys shirts from Colt Company. Dixon purchased shirts from Colt on May 27, and received an invoice with a list price amount of $3,600 and payment terms of 2/10, n/30. Dixon uses the net method to record purchases. Dixon should record the purchase at

a) $3,430
b) $3,500
c) $3,528
d) $3,600

Answer 1

The correct answer is option c. Dixon Menswear Shop should record the purchase at $3,528, which reflects the 2% discount for the payment terms of 2/10, n/30, according to the net method of recording purchases.

Step-by-step explanation:

The student's question pertains to the recording of a purchase made by Dixon Menswear Shop from Colt Company, with payment terms that allow for a discount if paid early. The terms were 2/10, n/30, which means that Dixon can take a 2% discount if they pay the invoice within 10 days, otherwise the net amount is due in 30 days.

Since Dixon uses the net method to record purchases, they will record the purchase with the discount already deducted, assuming they will take advantage of the discount terms. Hence, the correct entry is to initially record the purchase at $3,600 less the 2% discount, which is $72 ($3,600 x 0.02). Therefore, Dixon should record the purchase at: $3,600 - $72 = $3,528. Hence, the correct option is c) $3,528.