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Clearwater Construction Company purchases $600,000 in parts and supplies under credit terms of 2/30, net 60 every year

Clearwater Construction Company purchases $600,000 in parts and supplies under credit terms of 2/30, net 60 every year
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ACCOUNTING

18-2B. (Cost of trade credit) Clearwater Construction Company purchases $600,000 in parts and supplies under credit terms of 2/30, net 60 every year. Assuming that Clearwater takes advantage of the cash discount by paying on day 30, answer the following questions:

a. What is Clearwater’s average monthly payables balance? You may assume a 360-day year and that the accounts payable balance includes the gross amount owed (that is, no discount has been taken).

b. If Clearwater were to decide to pass up the cash discount and extend payment until the end of the credit period, what would its payable balance become?

c. What is the opportunity cost of not taking the cash discount?

 

FILE: MS WORD

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