Question

25)

Which of the following describes “factoring”?

		Paying invoices promptly in order to take advantage of a cash discount
		Selling accounts receivable
		Pledging accounts receivable as collateral
		Paying off bonds prior to their maturity date.

27)

2/15 net 45 (or 2/15, n/45) translates as:

		15 percent cash discount if paid in 2 days, net 45-day credit period.
		45 percent of account due in 15 days, payment prior to day 15 receives a 2 percent discount.
		2 percent cash discount if paid prior to 15 days, if customer does not take a cash discount, the full balance is due in 45 days.
		2 percent of the balance is due in 15 days; the remaining balance is due in 45 days.

28)

Zoro Inc. purchased a new machine on October 20, 2010 for $1,000,000 on credit. The supplier has offered Zoro terms of 2/10, n/45. Zoro’s bank is currently lending funds at 8 percent. IF Zoro pays this invoice within the DISCOUNT period, what is the exact amount they will pay the supplier?

		$20,000
		$920,000
		$980,000
		$1,000,000
		$1,020,000

29)

Zoro Inc. purchased a new machine on October 20, 2010 for $1,000,000 on credit. The supplier has offered Zoro terms of 2/10, n/45. Zoro’s bank is currently lending funds at 8 percent. IF Zoro elects NOT to pay this invoice within the DISCOUNT period, what is the exact amount they should pay the supplier?

		$20,000
		$920,000
		$980,000
		$1,000,000
		$1,020,000

Answer 1

Q No. 25:

- Factoring is a financial transaction in which a business sells its accounts receivable at discount to third party to meet its immediate requirement.

So, the Here Answer will be Selling accounts receivable

Q No. 27:

2/15 net 45 (or 2/15, n/45) translates as:

2 percent cash discount if paid prior to 15 days, if customer does not take a cash discount, the full balance is due in 45 days

Q No. 28:

Zoro Inc. will get the discounting terms as 2/10, n/45 which means if the payment is initiate within 10 days then company will get 2% discount

If the Zoro Inc. pays the invoice within the discounting period, the company will pay $9,80,000 ($10,00,000-2%)

Q No. 28:

Zoro Inc. will get the discounting terms as 2/10, n/45 which means if the payment is initiate within 10 days then company will get 2% discount

If the Zoro Inc. does not elect to pay within the discounting period, the full balance value of the invoice will be due in 45 days. Zoro Inc. will make payment for $10,00,000

Note: 8% lending rate is irrelavent for this question. In case the question asks to calculate profit/loss on the options.