Recording Cash Discounts

Schrand Corporation purchases materials from a supplier that offers credit terms of 1.5/15, n/60. It purchased $14,000 of merchandise inventory from that supplier on January 20, 2016.

Required a. Assume that Schrand Corporation paid the invoice on February 15, 2016. Prepare journal entries 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. Round your answer to one decimal place. Answer%

General Journal Description Debit Credit 1/20 2/15 Interest expense-discounts lost Cash Inventory Accounts payable Interest expense-discounts lost Cash (A) Accounts Payable (L) Inventory (A) Interest Expense-Discounts Lost (E) 1/20 1/20 1/20 1/20 2/15 2/15 2/15 2/15