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:

Exchange Rate

The worth of a single currency when converted into another.

Percentage

A portion of a whole expressed as a number between 0 and 100 rather than as a fraction.

Hectares

A metric unit of square measurement equal to 10,000 square meters, commonly used in agriculture and land measurement.

Land

The part of the earth's surface that is not covered by water, often considered in terms of its ownership or use.