A Firm Is Offered Trade Credit Terms of 2/8,net 45

question 60

Multiple Choice

A firm is offered trade credit terms of 2/8,net 45.The firm does not take the discount,and it pays after 58 days.What is the effective annual cost of not taking this discount? (Note: Do not use the approximate cost. )

• A) 21.63%
• B) 13.35%
• C) 22.95%
• D) 15.65%
• E) 18.70%

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Definitions:

LIFO Method

"Last In, First Out," an inventory valuation method where the most recently purchased items are the first to be sold, affecting the cost of goods sold and inventory valuation.

FIFO Method

"First In, First Out," an accounting method for valuing inventory, where the earliest items acquired are the first to be sold.

Inventory Valuation

The method used to assess the cost or market value of inventories held by a business for the purpose of financial reporting.

Interim Financial Reporting

Reporting of a company's financial performance and position for a period shorter than its fiscal year, often quarterly.