What Is the Effective Cost of Credit Terms of 2/10

question 53

Multiple Choice

What is the effective cost of credit terms of 2/10, net 30 if the firm stretches the accounts payable to 45 days?

• A)44.59%
• B)49.76%
• C)36.12%
• D)23.37%

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Definitions:

Capitalize

To record a cost as an asset, rather than an expense, delaying the recognition of the expense over time through depreciation or amortization.

Trademarks

Distinctive signs or symbols used by a business to identify and differentiate its products or services from those of others.

Intangibles

Non-physical assets possessed by a business, such as patents, trademarks, and copyrights, which have value due to the rights or information they convey.

Indefinite Lives

An accounting classification for intangible assets that are not amortized because their economic benefits are expected to be realized over an unlimited or indeterminate period of time.