Tangshan Mining Was Extended Credit Terms of 3/15 Net 30

question 141

Multiple Choice

Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is 75.26 percent. If the firm were able to stretch its accounts payable to 60 days without damaging its credit rating, the cost of giving up the cash discount would only be

• A) 18.81%.
• B) 18.25%.
• C) 21.90%.
• D) 25.09%.

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Definitions:

Taxpayers

Individuals or entities that are obligated to pay taxes to a governmental authority.

Involuntary Conversion

An event where property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and the owner receives other property or compensation in replacement.

Recognized Gain

The portion of gain considered for tax purposes when an asset is sold or disposed of, which may differ from the actual profit realized.

Basis

The initial value of an asset for tax purposes, used to determine gain or loss on sale or disposition.