Phillips Glass Company buys on terms of 2/15, net 30 days. It does not take discounts, and it typically pays 30 days after the invoice date. Net purchases amount to $730,000 per year. On average, how much "free" trade credit does Phillips receive during the year? (Assume a 365-day 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 of the credit term. The daily purchases are $730,000 / 365 = $2,000. Therefore, the "free" trade credit is 15 days * $2,000 = $30,000.

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