A company purchased $2,900 of merchandise on July 5 with terms 1/10, n/30. On July 7, it returned $320 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals: a.$320 b.$2,551. c.$2.554 d.$2,580

C) 2,554

Explanation:

When a company purchase a merchandise inventory on account, the journal entry to record the merchandise inventory is -

July 5  Merchandise Inventory   Debit   $2,900

Accounts payable           Credit   $2,900

After returning the merchandise of $320, the due amount = $(2,900 - 320) = $2,580

As the supplier sets the term as 1/10, n/30, it means if the buyer pays within 1 day, the purchaser will receive a 1% discount, but has to pay the amount within 30 days.

As the company pays the amount within 4 days of purchase (July 5 to July 8), the company will get the discount after the sales return.

Therefore, the company will pay cash = $2,580 - ($2,580 × 1%)

= $2,580 - 26

= $2,554

Therefore, option c is the correct answer.

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