Question

Melissa, of Melissa's Lawn and Landscaping Service, needs to replace her mowers.
She has ordered four new gas mowers, at $499 each, and a negotiated Trade
Discount Rate of 9%, with terms of 2/10 EOM, and FOB Shipping Point. The
seller has agreed to prepay the shipping charge of $80, which is not included in the
invoice amount. The invoice from the manufacturer is dated July 26.
Determine:
A)
By what date does Melissa have to pay in order to be able to take the cash
discount?
B)
What is the payment amount assuming that Melissa pays before the end of
the discount period?

Answer 1

Answer:

A) 10th of August

B) $1780.03

Step-by-step explanation:

A) From the payment terms of 2/10 EOM, Melissa is to receive a 2% discount if she pays within 10 days from the end of the month

From the date on the invoice, July 26, the date at which Melissa has to pay to take the cash discount is before the 10th of August

B) The payment amount will be 2% off the original payment amount

The total cost of the four new gas mowers less the trade discount = 499 × 4 × (100 - 9)/100 =$1816.36

The 2% discount will then be $1816.36 × (100 - 2)/100 = $1780.03

The payment amount assuming Melissa pays before the end of the discount period = $1780.03.