Buskirk Construction Buys on Terms of 2/15,net 60 Days

question 54

Multiple Choice

Buskirk Construction buys on terms of 2/15,net 60 days.It does not take discounts,and it typically pays on time,60 days after the invoice date.Net purchases amount to $600,000 per year.On average,how much "free" trade credit does the firm receive during the year? (Assume a 365-day year,and note that purchases are net of discounts. )

• A) $23,178
• B) $26,877
• C) $20,466
• D) $24,658
• E) $18,986

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Definitions:

FIFO Method

A method of inventory valuation where the first items purchased or manufactured are the first ones considered sold, standing for "First In, First Out."

Cost Of Merchandise Sold

The cost that is reported as an expense when merchandise is sold.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating the basic profitability of a company's core business activities.

Perpetual Inventory System

An accounting method that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management.