Question

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers. In March 2021, Garber provided $4,000 of plumbing services to Red Oak Inc., and $1,500 of services to Cyril Inc. Each of these customers was granted credit terms of 2/10, net 30. If both customers paid for the plumbing services within the discount period, what was the net revenues amount for these two transactions?a. $5,500
b. $4,312
c. $4,486
d. $4,606

Answer 1

Answer:

Option D. $4,606

Explanation:

The reason is that the trade discount is 20% on sales above $4000.

This means the sales made to Red Oak Inc. = $4000 * (1-20%) = $3,200

This 20% discount is not available on sales of $1,500 made to Cyril Inc. as the sales are below $,4000.

So total sales before considering settlement discount = $3,200 + $1,500

= $4,700

The settlement discount is available on both of these transaction because the customer have to pay within the discount period to avail this benefit. So the settlement discount here is 2%, if the customer pays within the discount period and has been calculated as under:

Settlement Discount = $4,700 * 2% = $94

Net Sales = $4,700 - $94 = $4,606

Hence the correct answer is option D.