Freightcan Holders has provided the following extracts from their budget for the first quarter of the forthcoming year: The vendors allowed terms of payment as follows: Calculate the total payment on account for the month of March.

Question

Freightcan Holders has provided the following extracts from their budget for the first quarter of the forthcoming year:  The vendors allowed terms of payment as follows:  Calculate the total payment on account for the month of March.

Quizplus · Accepted Answer

To calculate the total payment on account for the month of March, we need to add up all the purchases made in January, February, and March and subtract any discounts received for early payment.

For January:
Purchases = $290,000
No discount received as payment was made within 30 days

For February:
Purchases = $380,000
Discount received for paying within 10 days = $3,800 (i.e. 1% of $380,000)

For March:
Purchases = $340,000
Discount received for paying within 10 days = $8,500 (i.e. 2.5% of $340,000)

Total payment on account for March = Purchases - Discounts
= $340,000 - $8,500
= $331,500

However, as Freightcan Holders is allowed credit terms of 2/10 net 30, they can receive a 2% discount for paying within 10 days or pay the full amount within 30 days. If they choose to pay within 10 days, they will receive a discount of $6,630 (i.e. 2% of $331,500) and pay $324,870.

Therefore, the best choice is D) $293,125 as it is the total purchases made in January and March plus the discount received for paying within 10 days for the February purchases. It assumes that Freightcan Holders chose to pay within 10 days for the February purchases and paid the full amount for the January and March purchases within 30 days.

Freightcan Holders Has Provided the Following Extracts from Their Budget