Lesson 4 6.2 CASH Discount - Partial Payments winter 2021 PDF

Preview

Summary

Lesson 4 6.2 CASH Discount - Partial Payments winter 2021...

Description

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS What happens if the purchaser does not have all the money to pay off the entire invoice amount during the discount period? Assume that a cash discount will be offered on partial payments of the invoice when payments are made during the discount period. There are three types of partial payment problems that will be illustrated using the following example. The invoice amount is $5000. Assume that a payment is made within the discount period and that the discount is 5%. 1.

REDUCED BY (given the credit for payment) A partial payment is made to reduce the invoice amount by $3000. Determine the size of the payment. Solution: The amount credited is $3000. The discount is on the credit.

Payment = CR (1− d) = 3000(1− 0.05) = $2850 Reducing the debt by $3000 requires paying $3000 less the discount. The cash amount paid is $2850. The invoice amount of $5000 is reduced by $3000. This means that the $3000 is subtracted from the invoice amount. The balance of the debt still owing is Balance = Invoice - Credit Balance = 5000 – 3000 = $2000. 1.

Reduced by – given the credit for payment Find the payment and the outstanding balance

1

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS 2.

REDUCED TO (given the balance) A partial payment is made to reduce the amount due to $3000. Determine the payment. Solution: The debt is reduced to $3000. This means that $3000 is still owed after the payment is made. Since the discount applies to the credit, first find the credit. Credit = Invoice - Balance = 5000 – 3000 = $2000

Next find the payment.

Payment = CR (1− d) = 2000(1− 0.05) = $1900 A payment of $1900 reduces the amount due by $2000 and the outstanding balance is $3000.

2.

Reduced to– given the outstanding balance Find the credit and the payment.

2

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS 3.

NET PAYMENT A net payment of $3000 was made during the discount period. Find the outstanding balance. Solution: First find the credit for payment.

Solve the formula for credit

Payment = CR (1− d ) Payment = CR (1 − d ) CR =

3000 = $3157.89 (1− 0.05)

Balance = Invoice – Credit = 5000 - 3157.89 =$1842.11

3.

Given the Net Payment Find the credit and the outstanding balance.

3

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS Exercise 6.2 page 237 #8.

What payment will reduce the amount due on an invoice of $1940 by $740 if the terms of the invoice are 5/10, n/30 and the payment is made during the discount period? Solution: The invoice is reduced by $740 means that you are given the credit and you are asked to find the payment.

Payment = CR (1− d) = 740(1− 0.05) = $703

A payment of $703 will reduce the amount due on the invoice by $740.

4

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS #12. The Ski Shop received an invoice for $9600 dated August 11, terms 5/10, 2/30, n/90, for a shipment of skis. The Ski Shop made two partial payments. a) How much was paid on August 20 to reduce the unpaid balance to $7000? Solution: Find the payment, given the balance is $7000. First find the credit. Credit = Invoice – balance = 9600 – 7000 = $2600 Next, determine which discount applies. August 11 – August 20 = 9 days d = 5%

Payment = CR (1− d) = 2600(1− 0.05) = $2470 A payment of $2470 on August 20 reduces the unpaid balance to $7000.

5

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS b) How much was paid on September 10 to reduce the outstanding balance by $3000? Solution: Reduced by $3000 means the credit is $3000. Next, determine which discount applies. August 11 – September 10 = 30 days

d = 2%

Find the payment.

Payment = CR (1− d) = 3000(1− 0.02) = $2940 Therefore, a payment of $2940 on September 10 reduces the unpaid balance by $3000. c) What is the remaining balance on September 10? On August 10, the unpaid balance was reduced to $7000. On September 10, the unpaid balance of $7000 was reduced by $3000. Remaining balance on September 10 = 7000 – 3000 = $4000.

6

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS #14. Darrigo Grape received an invoice for 13,780 dated September 28, terms 5/20 R.O.G. from Nappa Vineyards for a carload of grape juice received October 20. Darrigo made a partial payment of $5966 on November 8. a) By how much did Darrigo reduce the amount due on the invoice? Solution: Find the credit. The terms 5/20 R.O.G. means that the discount period is extended to 20 days after the goods were received. The last day for the discount is November 9. (October 20 + 20 days) The payment of $5966 was made on November 8. The discount of 5% applies. Solve for CR

Payment = CR (1− d ) Payment =C R (1 − d ) CR =

5966 = $6280 (1 − 0.05)

Darrigo reduced the amount due by $6280.

b) How much does Darrigo still owe? Outstanding balance = 13,780 – 6280 =$7500 Darrigo still owes $7500. 7

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS Review Exercise page 260 #12. The Peel Trading Company received an invoice dated September 20 for $16,000 less 25% and 20%, terms 5/10, 2/30, n/60. Peel made a payment on September 30 to reduce the debt to $5000 and a payment on October 20 to reduce the debt by $3000. a) What amount must Peel remit to pay the balance of the debt at the end of the credit period? The end of the credit period is September 20 + 60 days = November 19. There will be no discount at the end of the credit period. First we need to find the invoice amount by applying the trade discount formula for a series of discounts.

Invoice = 16,000(1− 0.25)(1− 0.2) = $9600 This invoice amount is reduced to $5000 on September 30. The outstanding balance of $5000 is reduced by $3000 on October 20. New balance = 5000 – 3000 = $2000 Peel must remit $2000 to pay the balance of the debt by the end of the credit period.

8

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS b) What is the total amount paid by Peel? Solution: Peel made three payments. 1. On September 30, a payment was made to reduce the debt to $5000. Credit = 9600 – 5000 = $4600 September 20 to September 30 = 10 days

d = 5%

Payment = 4600(1− 0.05) = $4370 Peel paid $4370 on September 30. 2. On October 20, a payment was made to reduce the debt by $3000. Credit = $3000 September 20 to October 20 = 30 days

d =2%

Payment = 3000(1− 0.02) = $2940 Peel paid $2940 on October 20. 3. A final payment of $2000 was made at the end of the credit period. Total amount paid = 4370 + 2940 + 2000 =$9310 The total amount paid by Peel is $9310.

9

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS Review Exercise page 260 #13. Emco Ltd received an invoice dated May 5 for $4000 less 15% and 7½ %, terms 3/15 E.O.M. A cheque for $1595.65 was mailed by Emco on June 15 as part payment of the invoice. a) By how much did Emco reduce the amount due on the invoice? Solution: The terms 3/15 E.O.M means that a discount is allowed if the payment is made within 15 days after the end of the month of the invoice date. The last day for the cash discount is June 15. Given the payment, find the credit.

CR =

Payment (1 − d )

CR =

1595.65 = $1645 (1− 0.03)

Emco reduced the amount due on the invoice by $1645. b) How much does Emco still owe? Solution: First we need to find the invoice amount by applying the trade discount formula for a series of discounts.

Invoice = 4000(1− 0.15)(1− 0.075) = $3145 Outstanding balance = Invoice – Credit = 3145 – 1645 = $1500 Emco still owes $1500. 10

LESSON 4 (SECTION 6.2) CASH DISCOUNT – PARTIAL PAYMENTS Homework Exercise 6.2 pages 237 - 238 #7, 11, 13, 15 MyLab Math Study Plan – Section 6.2

11...