Question

Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer,...

Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer, Faulkner, Inc., purchased 100 Sweet-16 party decor packs with a list price of $20 each on March 5, 2013. Refer to the information provided for Eli Company. If the customer pays the amount of the invoice for its purchase on March 14, 2013, how much cash will Eli Company receive?

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Answer #1

Meaning of term 1/10, n/30 :

Eli company offering 1 % discount to its customer if payment received in 10 days otherwise credit period is 30 days.

in this case, Eli companys sells 100 packs of $ 20 each to Faulkner Inc on March 5, 2013

Sales value = $ 2,000 (100 * $ 20 )

Faulkner Inc make payment on March 14, 2013 i.e within 10 days from date of sale March 5, 2013

Therefore, Faulkner Inc is eligible for discount 1%.

Discount = Sales Value * Rate of Discount

= $ 2,000 * 1%

= $ 20

Thus, Eli company will receive net of discount from Faulkner Inc :

Cash collection = Sales Value - Discount given

= $ 2,000 -$ 20

= $1,980

Thus, Eli company will receive cash amounting $ 1,980

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