Question

You place an order for 250 units of inventory at a unit price of $130. The supplier offers terms of 1/10, net 30.

a-1 How long do you have to pay before the account is overdue?

a-2 If you take the full period, how much should you remit?

b-1 What is the discount being offered? Discount offered?

b-2 How quickly must you pay to get the discount?

b-3 If you do take the discount, how much should you remit?

c-1 If you don’t take the discount, how much interest are you paying implicitly?

c-2 How many days’ credit are you receiving?

Answer 1

Solution:
a-1.	Days until overdue = 30 days
Working Notes:
	Offers terms of 1/10, net 30., I f we pay within first 10 days we will get 1 % discount on our purchase amount if not then we have to pay with in 30 days of purchase.
	Hence, its become overdue after 30 days of purchase
a-2.	Remittance = $32,500
Working Notes:
	If we take full days then we will be not get any discount and have to make 100% payment.
	amount to be paid = 250 x 130
	= $32,500
b-1.	Discount offered = 1 %
Notes:	Offers terms of 1/10, net 30., I f we pay within first 10 days we will get 1 % discount on our purchase amount if not then we have to pay with in 30 days of purchase full payment.
b-2.	Number of days = 10 days
Working Notes:
	Offers terms of 1/10, net 30., I f we pay within first 10 days we will get 1 % discount on our purchase amount if not then we have to pay with in 30 days of purchase full payment.
	Hence we have to pay within 10 days of purchase to avail discount
b-3.	Remittance = $32,175
Working Notes:
	If we avail discount then total remittance = 250 units x $130 per unit x (100 - 1 ) %
		= 32,500 x 99%
		=32,175
c-1.	Implicit interest = $325
Working Notes:
	Implicit interest = Remittance without discount - With discount
	= $32,500 - $32,175
	= $325
	The implicit interest is the difference between the two remittance amounts
c-2.	Day's Credit = 20 days
Working Notes:
	Days’ credit receiving = Total period - discount period
	= 30-10
	=20 days
Please feel free to ask if anything about above solution in comment section of the question.