It is typically beneficial for companies to take advantage of early-payment discounts allowed on purchases made on credit. To see why this is the case, determine the effective rate of interest associated with not taking advantage of the early-payment discount for each of the following situations. Assume in each case that payment is made on the 30th day of the billing cycle. Required: 1. What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 2/10, n/30? 2. What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 1/10, n/30? 3. To motivate managers to take early-payment discounts, what is the appropriate accounting treatment for purchase discounts? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 2/10, n/30? (Do not round intermediate calculations. Enter your final answer as a percentage rounded to 2 decimal places (i.e., .1524 = 15.24%).) Opportunity cost % Required 1 Required 2 Required 3 What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 1/10, n/30? (Do not round intermediate calculations. Enter your final answer as a percentage rounded to 2 decimal places (i.e., .1524 = 15.24%).) Opportunity cost % Required 2 Required 3 To motivate managers to take early-payment discounts, what is the appropriate accounting treatment for purchase discounts? ORecord purchases at their net-of-discount amount and then record as "interest expense" or "purchase discounts lost any cash discounts not taken advantage of. ORecord purchases at their net-of-discount amount and not record any amount for not taking advantage of early payment discount. Required 1
