Roton Inc.purchases merchandise on terms of 2/15,net 40,and its gross purchases (i.e.,purchases before taking off the discount)are $800,000 per year.What is the maximum dollar amount of costly trade credit the firm could get,assuming it abides by the supplier's credit terms? (Assume a 365-day year.)
A)$53,699
B)$56,384
C)$59,203
D)$62,163
E)$65,271

Question

Quizplus · Accepted Answer

The correct answer is A.Explanation:The maximum dollar amount of costly trade credit the firm could get is the amount of the discount multiplied by the gross purchases. The discount is 2%, or 0.02, and the gross purchases are $800,000. Therefore, the maximum dollar amount of costly trade credit is $800,000 * 0.02 = $16,000. The firm could get this amount of trade credit by paying its bills within the discount period of 15 days.

Roton IncPurchases Merchandise on Terms of 2/15,net 40,and Its Gross Purchases