A subcontractor submits an invoice for $25,000 with 2/10 net 30 payment terms. If the general contractor pays within 10 days, what is the net amount due?
Correct Answer
A) $24,500
The terms 2/10 net 30 mean a 2% discount if paid within 10 days. Discount = $25,000 × 2% = $500. Net amount = $25,000 - $500 = $24,500.
Why This Is the Correct Answer
The payment terms 2/10 net 30 offer a 2% early payment discount if paid within 10 days of invoice date. Since the general contractor pays within the 10-day discount period, they are entitled to deduct 2% from the total invoice amount. The calculation is straightforward: $25,000 × 0.02 = $500 discount, resulting in a net payment of $24,500. This type of early payment discount is common in construction to improve cash flow for subcontractors.
Why the Other Options Are Wrong
Option C: $24,000
This is the full invoice amount without applying the 2% early payment discount. Since payment is made within 10 days, the discount must be applied.
Option D: $25,000
This amount ($23,500) would represent a 6% discount ($1,500 off), which is not what the payment terms specify. The terms clearly state only a 2% discount for early payment.
Memory Technique
Think 'Pay FAST, Pay LESS' - the faster you pay (within discount period), the less you owe. The first number is always the discount percentage.
Reference Hint
Florida Building Construction Standards - Chapter on Contract Administration and Payment Terms, or Business and Finance for Contractors section
More Business & Finance Questions
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
When establishing professional relationships with architects and engineers, what is the most important factor for a general contractor to consider?
A partnership agreement for a construction company should address all of the following EXCEPT:
A contractor purchases a truck for $60,000. After 5 years, it has accumulated depreciation of $35,000. What is the truck's book value?
A contractor's business plan projects first-year revenue of $500,000 with a 15% net profit margin. If actual revenue is $450,000 with the same profit margin, what is the variance in net profit?
Using the Modified Accelerated Cost Recovery System (MACRS), construction equipment is typically depreciated over how many years?
A contractor is comparing financing options for equipment purchase. Option A: $80,000 cash purchase. Option B: $20,000 down, $65,000 financed at 6% for 4 years. What is the total cost of Option B?
A contractor purchases equipment using a capital lease with a present value of $120,000. How should this be recorded on the balance sheet?