Sam Wainwright Is a New Accountant with Ground Floor Company

question 14

Essay

Sam Wainwright is a new accountant with Ground Floor Company. Ground Floor purchased merchandise on account for $18,000. The credit terms are 1/10, n/30. Sam has talked with the company's banker and knows that he could earn 4% on any money invested in the company's savings account.
Instructions
(a) Should Sam pay the invoice within the discount period or should he keep the $18,000 in the money market account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best.
(b) If Sam forgoes the discount, it may be viewed as paying an interest rate of 1% for the use of $18,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

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Definitions:

American Work Life

The characteristics and culture surrounding employment and labor in the United States, including norms, behaviors, and expectations.

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Organizations formed by workers to protect their rights and interests, often engaging in collective bargaining and labor negotiations with employers.

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