Chapter 5 Accounting for Merchandise Operations 261Terry:Yes, that’s a good point. If you buy it at Radiant Sound, they’ll charge you 6% sales tax.
Brad:But Audio Pro Electronics charges $12.50 for shipping and handling. If I have them send
it next-day air, it’ll cost $25 for shipping and handling.
Terry:I guess it is a little confusing.
Brad:That’s not all. Radiant Sound will give an additional 1% discount if I pay cash.
Otherwise, they will let me use my MasterCard, or I can pay it off in three monthly
installments.
Terry:Anything else???
Brad:Well... Audio Pro says I have to charge it on my MasterCard. They don’t accept checks.
Terry:I am not surprised. Many mail-order houses don’t accept checks.
Brad:I give up. What would you do?- Assuming that Audio Pro Electronics doesn’t charge sales tax on the sale to Brad, which
company is offering the best buy? - What might be some considerations other than price that might influence Brad’s decision
on where to buy the stereo system?
Your sister operates Callender Parts Company, a mail-order boat parts distributorship that is in
its third year of operation. The following income statement was recently prepared for the year
ended March 31, 2006:Your sister is considering a proposal to increase net income by offering sales discounts of 2/15,
n/30, and by shipping all merchandise FOB shipping point. Currently, no sales discounts are al-
lowed and merchandise is shipped FOB destination. It is estimated that these credit terms will
increase net sales by 10%. The ratio of the cost of merchandise sold to net sales is expected to be
70%. All selling and administrative expenses are expected to remain unchanged, except for store
supplies, miscellaneous selling, office supplies, and miscellaneous administrative expenses,
which are expected to increase proportionately with increased net sales. The amounts of these
preceding items for the year ended March 31, 2006, were as follows:Store supplies expense $8,000
Miscellaneous selling expense 3,200
Office supplies expense 1,600
Miscellaneous administrative expense 2,880The other income and other expense items will remain unchanged. The shipment of all mer-
chandise FOB shipping point will eliminate all transportation out expenses, which for the year
ended March 31, 2006, were $32,240.Activity 5-4
Sales discounts
Callender Parts Company
Income Statement
For the Year Ended March 31, 2006Revenues:
Net sales $960,000
Interest revenue 8,000
Total revenues $968,000
Expenses:
Cost of merchandise sold $672,000
Selling expenses 105,600
Administrative expenses 54,400
Interest expense 16,000
Total expenses 848,000
Net income $120,000