A Credit Sale Of $1,400 Is Made On July 15, Terms 2/10, N/30, On Which A Return Of $100 Is Granted On July 18. What Amount Is Received As Payment In Full On July 24?
Question
A credit sale of $1,400 is made on July 15, with credit terms 2/10, n/30. A sales return of $100 is granted on July 18. The customer pays the remaining balance in full on July 24.
What amount is received as payment in full?
Options
A. $1,400
B. $1,274 ✅
C. $1,350
D. $1,372
Correct Answer: B. $1,274
The amount received as payment in full on July 24 is $1,274.
Step-by-Step Solution
Let's solve the problem one step at a time.
Step 1: Understand the Credit Terms (2/10, n/30)
The credit terms 2/10, n/30 mean:
The buyer receives a 2% cash discount if payment is made within 10 days of the invoice date.
Otherwise, the full amount (net) is due within 30 days.
Since the sale occurred on July 15 and payment was made on July 24, the payment falls within the 10-day discount period. Therefore, the customer qualifies for the 2% discount.
Step 2: Calculate the Net Amount After the Sales Return
The customer returned goods worth $100 on July 18.
Net Credit Sale = Original Credit Sale − Sales Return
= $1,400 − $100
= $1,300
Step 3: Calculate the Cash Discount
The 2% discount applies to the net amount after the return, not the original invoice amount.
Discount = $1,300 × 2%
= $1,300 × 0.02
= $26
Step 4: Calculate the Amount Received
Payment Received = Net Credit Sale − Discount
= $1,300 − $26
= $1,274
Final Answer
Amount received as payment in full = $1,274
Correct Option: B. $1,274
Why Isn't the Discount Calculated on $1,400?
A common mistake is to calculate the discount on the original sale amount.
This is incorrect because the customer returned $100 of merchandise before making payment. Once the return is processed, the customer's outstanding balance becomes $1,300. Therefore, the 2% discount is calculated only on the amount that remains payable.
What If the Customer Paid on July 25?
If payment had been received on July 25, the customer would not qualify for the 2% discount because the discount period would have expired.
The company would receive the full outstanding balance:
$1,300
with no discount allowed.
Common Exam Mistakes
Students frequently lose marks by making one of these errors:
Calculating the 2% discount on $1,400 instead of $1,300.
Forgetting to subtract the sales return before calculating the discount.
Misunderstanding 2/10, n/30 and assuming the discount is available after 10 days.
Counting the payment date incorrectly and believing July 24 falls outside the discount period.
Avoiding these mistakes will help you solve similar accounting MCQs correctly.
Formula Used
Net Credit Sale = Original Credit Sale − Sales Return
Cash Discount = Net Credit Sale × Discount Rate
Payment Received = Net Credit Sale − Cash Discount
Key Takeaways
Original credit sale: $1,400
Sales return: $100
Net amount due: $1,300
Cash discount (2%): $26
Final payment received: $1,274
Therefore, the correct answer is Option B ($1,274).
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