Lifestyle received an invoice on March 15 from its supplier. The net total for an armchair was $575 and payment terms stated 4/15, 1/20 and n/30. What is the Cash Discount if they pay it on March 21st?
a- $5.75
b- $23.00
c- $57.50
d- $28.75
Answers
4/15 means 4% cash discount if payment is made within 15 days.
1/20 means 1% cash discount if payment is made after 15th day but before 20th day.
n/30 means that there is no discount after 20th day and net amount is due within 30 days.
According to given data
The invoice was received on March 15.
If payment is made on March 21, then it is the 6th day of purchase and Lifestyle will have 4% cash discount and that is
Cash Discount = 575(4%) = 575 (4/100) = 23
Discount: Discounts are the reductions or allowances in the basic prices of goods or services.
The question says,
Three different payment terms. 4/15, 1/20, n/30
That is,
If the amount is paid within 15 days, then the discount will be 4 percent.
If the amount is paid within 20 days, then the discount will be 1 percent.
If the amount is paid within 30 days, then the discount is n.
Invoice issued on March 15.
Bill paid on March 21.
Paid in 6 days.
And so, will get 4 percent discount.
Cash discount = 575 x (4/100)
Cash discount if they pay it on March 21st = $ 23
The answer is ( b ) $ 23
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