Your Firm Buys on Credit Terms of 2/10,net 45,and It

question 77

Multiple Choice

Your firm buys on credit terms of 2/10,net 45,and it always pays on day 45.If you calculate that this policy effectively costs your firm $157,500 each year,what is the firm's average accounts payable balance?

• A) $1,234,000
• B) $75,000
• C) $157,500
• D) $625,000
• E) $750,000

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Definitions:

Partial Years

Refers to accounting or financial reporting periods that are less than a full year, often due to the company's incorporation date or a change in accounting periods.

Units-Of-Production

A strategy for depreciation which assigns the cost of a property over its operational life, based on the volume of output it yields.

Double-Declining-Balance

An accelerated method of depreciation that doubles the regular depreciation rate, allowing for faster depreciation of assets in the early years.

Straight-Line

A method of calculating depreciation or amortization by dividing the difference between an asset's cost and its salvage value by the number of years it is expected to be used.