A company purchases merchandise with a catalog price of $20,000.The company receives a 35% trade discount from the seller.The seller also offers credit terms of 2/10,n/30.Assuming no returns were made and that payment was made within the discount period,what is the net cost of the merchandise?

A) $13,720.
B) $19,600.
C) $6,860.
D) $13,000.
E) $12,740.

Question

Dajour Willis · Accepted Answer

Final Answer : E, Explanation :  The trade discount is calculated as:Discount = Catalog price x Trade discount rateDiscount = $20,000 x 35%Discount = $7,000The amount payable after the trade discount is:Amount payable = Catalog price - DiscountAmount payable = $20,000 - $7,000Amount payable = $13,000The credit terms 2/10, n/30 mean that the buyer can take a 2% discount if they pay within 10 days, or they can pay the full amount within 30 days. Since the payment was made within the discount period, the net cost will be:Net cost = Amount payable - Discount availableNet cost = $13,000 - (2% of $13,000)Net cost = $13,000 - $260Net cost = $12,740Therefore, the best choice is E.

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