On June 1, 2014, Penny Corp. sold merchandise with a list price of $50,000 to Linn on account. Penny allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made F.o.b. shipping point. Penny prepaid $1,000 of delivery costs for Linn as an accommodation. On June 12, 2014, Penny received from Linn a remittance in full payment amounting to
A) $27,440.
B) $28,420.
C) $28,440.
D) $27,990.

Question

Quizplus · Accepted Answer

The net amount after the trade discounts can be calculated as: $50,000 - ($50,000 x 30%) = $35,000, then $35,000 - ($35,000 x 20%) = $28,000. The discount period is 15 days from the invoice date, so if Linn pays within that timeframe, they get a 2% discount ($28,000 x 2% = $560), making the payment amount $27,440. However, since Linn paid in full on June 12, 2014, which is within 40 days from the invoice date, they only need to pay the full $28,000. Adding the prepaid delivery costs of $1,000, the total payment from Linn is $29,000, and the correct answer is C.