Question

4. An invoice for $3500 dated July 17th, terms 2/10, E.O.M, is paid on August 10. What is the amount paid?

5. Mike received a payment of $807.50 from Andrew on October 7 on an invoice of $ 2731.75 dated September 27, terms 5/10. (draw a little chart)

(i) How much does Mike credit Andrew’s account for the payment?

(ii) How much does Mike still owe on the invoice

6. Turf has received an invoice of $ 1005.00 dated June 10, terms 3/10, n/30 R.O.G, for shipment of dresses that arrived on July 17. What is the last day to take a cash discount and how much is to be paid if the discount is taken?

7. A deposit of $2000 earns interest at 4.5% p.a. compounded quarterly. After two-and-a-half years, the interest rate is changed to 2.75% compounded monthly. How much is the account worth after 6 years?

Answer 1

4. The payment terms of invoice of $3,500 dated July 17 terms 2/10, E.O.M. implies that discount will be availed @ 2% if the payment is made within 10 days from the end of the month in which invoice is issued. In the given case, payment has been made on August 10, which falls within the discount period, therefore, the discount would be equal to 3,500*2%=70 and the amount paid would be calculated after deducting such discount i.e. 3,500-70=$3,430.

5. The terms 5/10 implies that discount of 5% will be provided if payment is made within 10 days from the invoice date i.e. September 27 and part payment is made on Oct.7, which falls within the discount period. Hence, discount will be provided by Mike to Andrew @ 5%. In the question, it is given that Mike has received the payment of $807.50 from Andrew, which reflects the net amount after discount. Thus, discount calculated would be equal to 807.50*5/95 = $42.50. As a result, Mike would credit Andrew's account by the total of 807.50+42.50=$850. Mike still owes an amount of $1881.75 (2,731.75-850).

6. Terms 3/10, n/30 R.O.G. indicate that the credit period is 30 days from the date of receipt of goods and discount would be provided @ 3% if payment is made within 10 days.Considering that the goods arrived on July 17, the last day to take cash discount would be July 27. Discount is equal to $1,005*3% = $30.15 and if the discount is taken, then amount to be paid = 1,005 - 30.15 = $974.85.