Kirk Development buys on terms of 2/15,net 60 days.It does not take discounts,and it typically pays on time,60 days after the invoice date.Net purchases amount to $475,000 per year.On average,what is the dollar amount of total trade credit (costly + free)the firm receives during the year,i.e. ,what are its average accounts payable? (Assume a 365-day year,and note that purchases are net of discounts. )
A) $78,082
B) $96,822
C) $60,904
D) $78,863
E) $91,356

Question

Quizplus · Accepted Answer

The average accounts payable can be calculated using the formula: (Net Purchases / 365) * Payment Period. Here, it is ($475,000 / 365) * 60 = $78,082.

Kirk Development Buys on Terms of 2/15,net 60 Days