company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:
A. $200.
B. $1,564.
C. $1,568.
D. $1,600.
E. $1,80
The Correct Answer and Explanation is:
Correct Answer: C. $1,568
Explanation:
This question tests your understanding of purchase discounts under credit terms.
Let’s break it down step by step:
1. Original Purchase (July 5)
- The company bought $1,800 worth of merchandise.
- The terms are 2/10, n/30, which means:
- The buyer gets a 2% discount if payment is made within 10 days.
- Otherwise, the full amount is due within 30 days.
2. Return of Merchandise (July 7)
- The company returned $200 worth of merchandise.
- This reduces the balance owed:
- $1,800 – $200 = $1,600 net amount due.
3. Payment (July 8)
- Payment is made on July 8, which is within the discount period (10 days from July 5).
- Therefore, the company qualifies for the 2% discount on the net amount due.
4. Calculate the Discount
- 2% of $1,600 = 0.02 × $1,600 = $32
5. Subtract Discount from Net Amount
- $1,600 – $32 = $1,568
✅ Final Amount Paid = $1,568
Why Not the Other Options?
- A. $200 → This is just the returned amount, not what was paid.
- B. $1,564 → Incorrect discount calculation.
- D. $1,600 → Full amount after return, but no discount applied.
- E. $1,80 → Typographical error (probably meant $1,800, which was the initial purchase before returns or discounts).
Conclusion:
Understanding the credit terms is crucial. The “2/10, n/30” term incentivizes early payment with a discount. Since the company paid early, it earned a 2% discount on the adjusted balance after the return. That makes the correct amount paid $1,568.
Answer: C. $1,568 ✅