Banks charge fees of up to $56 for bounced cheques; that is, NSF cheques that exceed the balance in the payor's account. It has been estimated that processing bounced cheques costs a bank less than $5 per cheque. Thus, the profit margin on bounced cheques is high. Recognizing this, banks process cheques from largest to smallest within the same date range. By doing this, they maximize the number of cheques that bounce if a customer overdraws an account.
Banks charge fees of up to $56 for bounced cheques; that is, NSF cheques that exceed the balance in the payor's account. It has been estimated that processing bounced cheques costs a bank less than $5 per cheque. Thus, the profit margin on bounced cheques is high. Recognizing this, banks process cheques from largest to smallest within the same date range. By doing this, they maximize the number of cheques that bounce if a customer overdraws an account.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Gadubhai
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Banks charge fees of up to $56 for bounced cheques; that is, NSF cheques that exceed the balance in the payor's
account. It has been estimated that processing bounced cheques costs a bank less than $5 per cheque. Thus, the profit
margin on bounced cheques is high. Recognizing this, banks process cheques from largest to smallest within the same
date range. By doing this, they maximize the number of cheques that bounce if a customer overdraws an account.
A company had a balance of $1,800 in its chequing account on a day when the bank received the following five cheques
for processing against that account:
Cheque Number
1.
3150
3158
2.
3162
3165
3169
$
Assuming a $56 fee is charged by the bank for each NSF cheque, how much service charge revenue would the bank
generate if it processed cheques (1) from largest to smallest and (2) from smallest to largest?
LA
$
Amount
LA
$48
1,808
480
1,072
224
Service charge
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