Fortuna Company purchased merchandise for resale from Lemar Company with an invo
ID: 2361149 • Letter: F
Question
Fortuna Company purchased merchandise for resale from Lemar Company with an invoice price of $29,100 and credit terms of 2/10, n/60. The merchandise had cost Lemar $19,846. Fortuna paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 8% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy.
Explanation / Answer
By paying it on the last day of the discount period, Fortuna paid Lemar $28,518. (Saved 2% of 29,100 or 0.02*29,100 = 582). They borrowed money to pay the 28,518 at a rate of 8% and paid that back on the last day of the credit period which would be a 50-day period (60 – 10). The interest they will pay is 28,518*0.08*50/365 = $312.53. So they paid a total of 28,518 + 312.53 = 28,830.53. So by doing this, they saved 29,100 – 28,830.53 = $269.47