Garo Company, a retail store, is considering forgoing sales discounts to delay using its cash. Supplier credit terms are 2/10, net 30. Assuming a 360-... Accounting MCQs | Accounting MCQs

Garo Company, a retail store, is considering forgoing sales discounts to delay using its cash. Supplier credit terms are 2/10, net 30. Assuming a 360-day year, what is the annual cost of credit if the cash discount is not taken and Garo pays net 30?

24.0%
24.5%
36.0%
36.7%Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. The annualized cost of not taking a discount is calculated using this formula: Cost of not taking discount = [2% ÷ (100% – 2%)] × [360 days ÷ (30 days – 10 days)] = (2% ÷ 98%) × (360 days ÷ 20 days) = 2.0408% × 18 = 36.73%