A material supplier offers terms of 2/10 net 30. If an invoice for $25,000 is paid within the discount period, what is the net payment amount?
Correct Answer
A) $24,500
The terms 2/10 net 30 mean a 2% discount if paid within 10 days. The discount is: $25,000 × 2% = $500. Net payment: $25,000 - $500 = $24,500.
Why This Is the Correct Answer
Option C ($24,500) is correct because the terms 2/10 net 30 offer a 2% discount if payment is made within 10 days. The calculation is straightforward: 2% of $25,000 equals $500 discount. Subtracting the $500 discount from the original invoice amount of $25,000 results in a net payment of $24,500. This represents the actual amount the contractor must pay to take advantage of the early payment discount.
Why the Other Options Are Wrong
Option C: $24,000
Option A ($24,000) represents a 4% discount ($1,000 off), which is double the actual discount rate offered in the terms.
Option D: $24,750
Option D ($24,750) represents only a 1% discount ($250 off), which is half of the actual 2% discount offered in the terms.
Memory Technique
Think '2/10 net 30' as '2% off if you pay in 10 days' - then just multiply invoice × 0.02 to find discount, subtract from total
Reference Hint
Business and Finance chapter covering payment terms, cash discounts, and accounts payable management
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