Recording Cash Discounts

On November 15, 2015, Shields Company purchased inventory costing $6,200 on credit. The cred-

it terms were 2/10, n/30.

a. Assume that Shields Company paid the invoice on November 23, 2015. Prepare journal en-

tries to record the purchase of this inventory and the cash payment to the supplier using the

net-of-discount method.

b. Set up the necessary T-accounts and post the journal entries from question a to the accounts.

c. Compute the cost of a lost discount as an annual percentage rate