Kirk 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 average accounts payable is equal to the average daily purchases multiplied by the average payment period. The average daily purchases are $550,000 / 365 = $1,506.85. The average payment period is 60 days. Therefore, the average accounts payable is $1,506.85 * 60 = $90,411.

Kirk Development Buys on Terms of 2/15,net 60 Days