1. The amount of the cash discount that Farwell Paints would get for paying within the 2% discount period is $20.51.
2. The amount of the cash price that Farwell Paints would pay within the 2% discount period is $1,004.89.
A cash discount is a reduction in the price of a purchase when payment is received within the discount period.
Invoice price = $1,025.40
Discount rate = 2%
Cash discount = $20.51 ($1,025.40 x 2%)
Cash price paid = $1,004.89 ($1,025.40 - $20.51) or ($1,025.40 x 1 - 2%)
Thus, Farwell Paints would pay $1,004.89 instead of $1,025.40, with a cash discount of $20.51.
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