Buskirk Construction 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 $450,000 per year.On average,how much "free" trade credit does the firm receive during the year? (Assume a 365-day year,and note that purchases are net of discounts.)
A)$18,493
B)$19,418
C)$20,389
D)$21,408
E)$22,479

Question

Quizplus · Accepted Answer

The "free" trade credit is the amount of credit the firm receives without paying interest, which is the amount of credit taken during the discount period. The firm has 15 days of free credit (the discount period) on its purchases. The average daily purchases are $450,000 / 365 = $1,232.88. The free trade credit is $1,232.88 * 15 = $18,493.20, which rounds to $18,493.

Buskirk Construction Buys on Terms of 2/15,net 60 Days