Schrand Corporation purchases materials from a supplier that offers credit terms of 2/15, n/60. It purchased $12,500 of merchandise inventory from that supplier on January 20, 2014.

Required

a. Assume that Schrand Corporation paid the invoice on February 15, 2014. Prepare journal entries to record the purchase of this inventory and the cash payment to the supplier using the net-of-discount method.

General Journal
	Description	Debit	Credit

1/20	Answer Accounts payableCashInterest expense-discounts lostInventory	Answer	Answer
	Answer Interest expense-discounts lostAccounts payableInventoryCash	Answer	Answer
2/15	Answer Interest expense-discounts lostCashAccounts payableInventory	Answer	Answer
	Interest expense-discounts lost	Answer	Answer
	Answer InventoryAccounts payableCashInterest expense-discounts lost	Answer	Answer

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

Cash (A)
1/20	Answer	Answer
2/15	Answer	Answer

Accounts Payable (L)
1/20	Answer	Answer
2/15	Answer	Answer

Inventory (A)
1/20	Answer	Answer
2/15	Answer	Answer

Interest Expense-Discounts Lost (E)
1/20	Answer	Answer
2/15	Answer	Answer

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

Round your answer to one decimal place.

Answer

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