General accounting question Pacific Trading Company is offered payment terms of3/15, net 60 by its suppliers. Currently, Pacific does notutilize the early payment discount and pays on day 60.The CFO, Ms. Chen, proposes borrowing from WesternBank at 13% annual interest to take advantage of the earlypayment discounts. The bank requires an 18%compensating balance, and existing account balancescannot be used to meet this requirement.Should Ms. Chen implement this proposal?

Step 1: DefinitionDiscount Terms (3/15, net 60):A 3% discount is offered if payment is made within…

Answered: Pacific Trading Company is offered…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 16P

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The Reynolds Corporation buys from its suppliers on terms of 2/15, net 55. Reynolds has not been utilizing the discounts offered and has been taking 55 days to pay its bills. Ms. Duke, Reynolds Corporation's vice president, has suggested that the company begin to take the discounts offered. Duke proposes that the company borrow from its bank at a stated rate of 21 percent. The bank requires a 29 percent compensating balance on these loans. Current account balances would not be available to meet any of this compensating balance requirement. Calculate the cost of not taking a cash discount. Note: Use a 360 day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Calculate the effective rate of interest if the company borrows from the bank. Note: Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Do you agree with Duke's proposal? multiple choice No Yes
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Max Corp. sold goods for $36,000 on July 17, 2020, and accepted a 12%, 90-day note. On August 1, the note was sold to a bank at a 15% discount rate. Required: a. Compute the proceeds. Assume a 360-day year. b. If the maker dishonored the note at maturity, prepare the entry for Max Corp. assuming $75 of bank protest fees. If an amount box does not require an entry, leave it blank.
On June 30, 2021, Blondie Fixtures was considering alternatives to bolster its cash position. Option One called for transferring $340,000 in accounts receivable to Dogwood Finance Company without recourse for a 6% fee. Option Two calls for Blondie to transfer the $340,000 in receivables to Dogwood with recourse. Dogwood's charges a 5% fee for receivables factored with recourse. Option Two meets the conditions to be considered a sale, but Blondie estimates a $2,400 recourse liability. Under either option, Dogwood will immediately remit 90% of the factored receivables to Blondie, and retain 10%. When Dogwood collects the remaining receivables, it remits the amount, less the fee, to Blondie. Blondie estimates that the fair value of the final 10% of the receivables is $22,000 (ignoring the factoring fee). Required:1. Prepare any necessary journal entry or entries if receivables are factored under Option One.2. Prepare any necessary journal entry or entries if receivables are factored under…
Max Corp. sold goods for $36,000 on July 17, 2020, and accepted a 12%, 90-day note. On August 1, the note was sold to a bank at a 15% discount rate. Required: a. Compute the proceeds. Assume a 360-day year. $ b. If the maker dishonored the note at maturity, prepare the entry for Max Corp. assuming $75 of bank protest fees. If an amount box does not require an entry, leave it blank.
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On December 31, 2020, Sarasota Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Sarasota Co. agreed to accept a $337,600 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 11%. Sarasota is much more creditworthy and has various lines of credit at 5%. Click here to view factor table. (a) Your answer is partially correct. Prepare the journal entry to record the transaction of December 31, 2020, for the Sarasota Co. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Dec. 31, 2020 Account Titles and Explanation Notes Receivable Service Revenue Discount on Notes Receivable Debit…
On December 31, 2020, Sarasota Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Sarasota Co. agreed to accept a $337,600 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 11%. Sarasota is much more creditworthy and has various lines of credit at 5%. Click here to view factor table. (a) Your answer is partially correct. Prepare the journal entry to record the transaction of December 31, 2020, for the Sarasota Co. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Dec. 31, 2020 Account Titles and Explanation Notes Receivable Debit 337,600 Credit 107 IN
On April 1, 2020, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2020. The assignment agreement calls for Rasheed to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type). Instructions a. Prepare the April 1, 2020, journal entry for Rasheed Company. b. Prepare the journal entry for Rasheed’s collection of $350,000 of the accounts receivable during the period from April 1, 2020, through June 30, 2020. c. On July 1, 2020, Rasheed paid Third National all that was due from the loan it secured on April 1, 2020. Prepare the journal entry to record this payment.
On December 31, 2020, Larkspur Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Larkspur Co. agreed to accept a $ 252,100 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Larkspur is much more creditworthy and has various lines of credit at 6%.Click here to view factor table. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf

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