Ingram Office Supplies,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 $800,000 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. )Do not round intermediate calculations.

Question

Quizplus · Accepted Answer

11ea856c_8b58_8db7_9aec_a946473028df_TB1222_00 ?
Purchases/day = $800,000/365 = $2,192
Avg.trade credit = Average A/P = Days to payment 11ea856c_8b58_b4c8_9aec_e70f2ddf7a8b_TB1222_11 Net purchases/day = $109,589
Free trade credit = Discount days 11ea856c_8b58_b4c9_9aec_d1a02c340835_TB1222_11 Purchases/day = $32,877
Costly trade credit = Total credit - Free credit = $76,712
?
Alternatively,Costly TC = (Days to pmt - Disc days) 11ea856c_8b58_b4ca_9aec_bbcd0a1f1d9c_TB1222_11 (Purchases/day)= $76,712
?