Need some help with accounting please?

Question

info: Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice price of $24,000 and credit terms of 3/10, n/60. The merchandise had cost Mesa $16,000. Santa Fe paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.

Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 8% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy

question: buyers net savings? what do i do to solve for this?

Answer 1

We do not need to use Mesa's cost of the merchandise, nor
is the perpetual inventory system pertinent in computing the savings.

There are two ways this can be calculated.

First of all, it states that the short term note was borrowed on the last day of the discount period. The terms were 3/10, net 60. Therefore, 60 days less 10 days leaves 50 days until the end of the credit period. The short term note would have been for 50 days.

Lets calculate the discount on the purchase:
(24,000.) (.03) = 720.00 discount
So, 24,000. - 720. = 23,280.00
Taking advantage of the discount, 23,280.00 would be remitted in payment of the merchandise, saving the buyer 720.00.

Now we would have to calculate the interest on the short term note. 23,280. would have been borrowed.
So:
(23,280.) (.08) (50/360) = 25.86 interest on short term note.

So example #1:
We saved 720. which cost us 25.86
Savings (720. - 25.86) = 694.14 answer

Example #2:
Taking advantage of the discount, plus the interest on the note, the buyer paid:
23,280. + 25.86 = 23,305.86

If we had waited the full 60 days because of being sort of funds, our cost of the merchandise would have been 24,000.

So:
24,000.00 - 23,305.86 = 694.14 answer

I hope this helps

Answer 2

First, Mesa's cost and the perpetual inventory system are red herrings in this question.

If Santa Fe paid in the discount period, they paid $23,280.

You need to compute the 8% loan, but you don't say how long the credit period lasts, so I cannot compute that for you, unless you mean it was until the last day of the 60 days. In that case, it's $23,280 + (23,280 x .08 x 50/365) = $23,535.12 final cost.

If they take the discount, and then do the 50 day loan Santa Fe Company saved $464.88