An invoice for $3,500 dated September 15 with terms 2/10, 1½/20, n/30, EOM is received in the mail on September 20. If the company wants to reduce the outstanding balance to $2,000, how much should they pay on October 10?
A) $1,470.00
B) $1,477.50
C) $1,530.00
D) $1,522.50
E) $1,500.00

Question

Quizplus · Accepted Answer

The correct answer is A.The discount period is 10 days, so the company has until September 25 to take the 2% discount. The discount is calculated as 2% of $3,500, which is $70. If the company takes the discount, they will pay $3,500 - $70 = $3,430.The net period is 30 days, so the company has until October 15 to pay the invoice in full. If the company pays the invoice after the discount period but before the net period, they will be charged a 1½% late payment fee. The late payment fee is calculated as 1½% of $3,500, which is $52.50. If the company pays the invoice after the net period, they will be charged a 1½% late payment fee plus interest.If the company wants to reduce the outstanding balance to $2,000, they need to pay $3,500 - $2,000 = $1,500. If they take the discount, they will pay $1,500 - $70 = $1,430. If they pay the invoice after the discount period but before the net period, they will pay $1,500 + $52.50 = $1,552.50. If they pay the invoice after the net period, they will pay $1,500 + $52.50 + interest.Therefore, the company should pay $1,430 on October 10 to reduce the outstanding balance to $2,000.

An Invoice for $3,500 Dated September 15 with Terms 2/10