Taylor Textbooks Inc.buys on terms of 2/15, net 50 days.It does not take discounts, and it typically pays on time, 50 days after the invoice date.Net purchases amount to $450,000 per year.On average, what is the dollar amount of costly trade credit (total credit − free credit) the firm receives during the year? (Assume a 365-day year, and note that purchases are net of discounts.)
A) $43,151
B) $45,308
C) $47,574
D) $49,952
E) $52,450

Question

Quizplus · Accepted Answer

Taylor Textbooks Inc. pays on time, 50 days after the invoice date. So, the firm receives 50 days of free credit. The firm does not take discounts, so the total credit is 50 days. Therefore, the dollar amount of costly trade credit is $450,000 * (50/365) = $43,151.