Development buys on terms of 2/15, net 60 days.It does not take discounts, and it typically pays on time, 60 days after the invoice date.Net purchases amount to $550,000 per year.On average, what is the dollar amount of total trade credit (costly + free) the firm receives during the year, i.e., what are its average accounts payable? (Assume a 365-day year, and note that purchases are net of discounts.)
A)$ 90,411
B)$ 94,932
C)$ 99,678
D)$104,662
E)$109,895

Question

Quizplus · Accepted Answer

The firm receives trade credit for 60 days, and its average accounts payable are equal to 60/365 * $550,000 = $90,411.

Development Buys on Terms of 2/15, Net 60 Days