Question

Jones Manufacturing sent Blue Company an invoice for equipment with a list price of $10,000. The invoice is dated July 27 with terms of 2/10, EOM. Blue Company is entitled to a 40% trade discount. If the invoice is paid on September 8, how much does Blue pay?

Answer 1

Answer:

Amount to be paid = $6,000

Explanation:

Trade discount is the reduction in the list price granted to a buyer. A 40% trade discount implies that Blue would have to pay only 60% of the list price.

The amount due for settlement = 10,000 - (40%× 10,000)= $6,000.

The  term 2/10 implies that Jones is entitled to a cash a discount of 2% if it settles its invoice within 10 days following the invoice date. The deadline settlement date to receive the discount would therefore be August 6.

Since the account was settled on September 8 which is later than the deadline date set to qualify for the cash settlement discount, Blue would have to pay $6,000.

Amount to be paid = $6,000