Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice price of $28,600 and credit terms of 2/10, n/60. The merchandise had cost Mesa $19,505. Santa Fe paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.
1. Prepare the entries that Santa Fe should record for the above transactions
2. Prepare the entries that Mesa should record for the above transactions.
3. 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. (Use 365 days a year. Do not round intermediate calculations.)
Savings from discount taken:
Amount Borrowed:
Number of day of interest:
Interest Expense:
Buyers net savings: