Phillips Glass Company buys on terms of 2/15, net 30.It does not take discounts, and it typically pays 30 days after the invoice date.Net purchases amount to $720,000 per year.On average, how much "free" trade credit does Phillips receive during the year?
A)$30,000
B)$40,000
C)$50,000
D)$60,000
E)$70,000

Question

Quizplus · Accepted Answer

Phillips Glass Company receives "free" trade credit for the first 15 days, which is the discount period. The daily purchase amount is $720,000/365 = $1,972.60. For 15 days, the free trade credit is 15 * $1,972.60 = $29,589, approximately $30,000.

Phillips Glass Company Buys on Terms of 2/15, Net 30