Answered: On february 5, 2018, nicanor…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Practice Pack

On february 5, 2018, nicanor merchandising has purchased goods on account amounting to 500,000 with credit terms of 3/15, n/60 from its major trade supplier. nicanor operates 360 days a year.

Required:

1. compute the nominal cost of trade credit

2. compute the effective cost of trade credit

3. assuming nicanor did not pay the account within the discount period, how much is the penalty in using the money for the next 45 days?

4. in case the prevailing interest rate on bank loan is 20% per annum at simple interest, should nicanor pay within the discount period or not? Breifly discuss your answer and present supporting computation.

5. determine the net monetary benefit that nicanor will enjoy in selecting the optimal alternative.

please answer 3-5 thank you

10.3 Problem
On February 5, 2018, NICANOR Merchandising has purchased goods on account amounting
to P500,000 with credit terms of 3/15, n/60 from its major trade supplier. NICANOR operates
360 days a year.
Required:
1. Compute the nominal cost of trade credit.
2. Compute the effective cost of trade credit.
3. Assuming NICANOR did not pay the account within the discount period, how much
is the penalty in using the money for the next 45 days?
4. In case the prevailing interest rate on bank loan is 20% per annum at simple interest,
should NICANOR pay within the discount period or not? Briefly discuss your answer
and present supporting computation.
5. Determine the net monetary benefit that NICANOR will enjoy in selecting the optimal
alternative.
10.4 Problem
ANGEL Company has purchased raw materials amounting to P800,000 from its major
supplier on February 14, 2018. The credit terms given to ANGEL were: 3/20, net 60. ANGEL
operates 360 days a year.
Three days after the purchase, the supplier is offering ANGEL new credit terms of 2/10,
net 30 for the purchase transaction. The supplier is giving ANGEL the choice between the
old credit terms of 3/20, net 60, and the new credit term of 2/10, net 30.
Required:
1. Compute the cost of the supplier's trade credit of the two terms.
2. Compute the effective cost of credit of the two credit terms.
3. Which credit terms should be chosen by ANGEL Company assuming cash discount
will not be taken, or payment will be made on the last day of the credit term? Discuss
your answer briefly.
4. Based on the answer in item number 3 and assuming that the prevailing interest rate
of bànks is 20%, compute the net monetary benefits that ANGEL will enjoy when she
takes the cash discount by paying within the discount period, and making use of bank
borrowing as source of funds for the remaining 40 days.
CS Scanned with CamScanner

Expert Solution

Learn your way

Includes step-by-step video

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions