A contractor receives a material invoice dated March 15th with terms of '2/10 net 30'. If the invoice amount is $25,000, how much would be saved by paying within the discount period?
Correct Answer
B) $500
The terms '2/10 net 30' mean a 2% discount is available if paid within 10 days. The discount amount is $25,000 × 0.02 = $500, so the contractor would save $500 by paying within the discount period.
Why This Is the Correct Answer
The terms '2/10 net 30' is standard payment terminology where the first number (2) represents the discount percentage, the second number (10) represents the days to qualify for the discount, and 'net 30' means full payment is due within 30 days. To calculate the discount, you multiply the invoice amount by the discount percentage: $25,000 × 2% = $25,000 × 0.02 = $500. This discount is only available if payment is made within 10 days of the March 15th invoice date.
Why the Other Options Are Wrong
Option A: $250
$250 would result from incorrectly calculating 1% instead of 2% of the invoice amount ($25,000 × 0.01 = $250)
Option C: $750
$750 would result from incorrectly calculating 3% instead of 2% of the invoice amount ($25,000 × 0.03 = $750)
Option D: $1,000
$1,000 would result from incorrectly calculating 4% instead of 2% of the invoice amount ($25,000 × 0.04 = $1,000)
Memory Technique
Remember 'First number = discount percent, Second number = days to get it' - so 2/10 means 2% discount if paid in 10 days
Reference Hint
Business and Finance chapter covering payment terms, cash discounts, and accounts payable management
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