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12 November, 20:16

Jones Manufacturing sent Blue Company an invoice for equipment with a list price of $10,000. The invoice is dated July 27 with terms of 2/10, EOM. Blue Company is entitled to a 40% trade discount. If the invoice is paid on September 8, how much does Blue pay?

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  1. 12 November, 22:48
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    Amount to be paid = $6,000

    Explanation:

    Trade discount is the reduction in the list price granted to a buyer. A 40% trade discount implies that Blue would have to pay only 60% of the list price.

    The amount due for settlement = 10,000 - (40% * 10,000) = $6,000.

    The term 2/10 implies that Jones is entitled to a cash a discount of 2% if it settles its invoice within 10 days following the invoice date. The deadline settlement date to receive the discount would therefore be August 6.

    Since the account was settled on September 8 which is later than the deadline date set to qualify for the cash settlement discount, Blue would have to pay $6,000.

    Amount to be paid = $6,000
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