As the struggling owner of a new restaurant, you suffer from a habitual shortage of cash. Yesterday the following invoices arrived:
Vendor Face Amount Terms
Cornation Produce $ 600 n/30
John's Fisheries 1,000 1/10, n/45
Garcia Equipment 2,000 2/10, n/60
1. Write out the exact meaning of each of the terms.
2. You can borrow cash from the local bank on a note bearing an annual interest rate of 12%. Should you borrow to take advantage of the cash discounts offered by the last two vendors? Why? Show computations. For interest computations, assume a 360-day year.
3. Prepare the journal entry from Garcia Equipment's standpoint if you were to pay the amount due within the discount period.