Ivan Rice is a new accountant with Wertz Company. Wertz purchased merchandise on account for $6,000. The credit terms are 2/10, n/30. Ivan has talked with the company's banker and knows that he could earn 10% on any money invested in the company's savings account.
(a)Should Ivan pay the invoice within the discount period or should he keep the $6,000 in the savings account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best.
(b)If Ivan forgoes the discount, it may be viewed as paying an interest rate of 2% for the use of $6,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.
This question was answered on: Sep 16, 2020
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