CONTEMP.FINANCIAL MGMT. (LL)-W/MINDTAP
14th Edition
ISBN: 9780357292877
Author: MOYER
Publisher: CENGAGE L
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Chapter 18, Problem 7P
Summary Introduction
To determine: The net variations in the pretax profits.
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RAF has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following table. (Note: Assume a 365-day year.)
Supplier Credit terms
J 1/10 net 30 EOM
K 2/20 net 80 EOM
L 1/20 net 60 EOM
M 3/10 net 55 EOM
Calculate the approximate cost of giving up the cash discount from each supplier.
If the firm needs short-term funds, which are currently available from its commercial bank at 16%, and if each of the suppliers is viewed separately, which, if any, of the suppliers’ cash discounts should the firm give up? Explain why.
Kingbird Inc. sold $16,200 of its designer tables to Santos Furniture and Design Studios on account. Kingbird estimates that $1,800 of
these sales will either be returned or an allowance will be granted.
Prepare the entries when (a) Kingbird makes the sale (use the gross method), and (b) Kingbird grants an allowance of $1,000 when
some of the tables do not meet exact specifications but still could be sold by Santos. (Credit account titles are automatically indented when
the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
No. Account Titles and Explanation
Debit
Credit
(a)
(b)
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which will affect the actual cost of asset being sold for the buyer and the seller.
Consider this case:
Green Moose Industries buys most of its raw materials from a single supplier. This supplier sells to Green Moose on terms of 1/10, net 30.
The cost per period of the trade credit extended to Green Moose is ________(1.23%, 0.89%, 1.01%, 1.05%) (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.).
Green Moose’s trade credit has a nominal annual cost of _______ (22.85%, 19.17%, 16.59%, 18.43%) , assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)
If Green Moose Industries’s supplier shortens its discount period to five days, this will _______ (Increase, Decrease) the cost of the trade credit.
Chapter 18 Solutions
CONTEMP.FINANCIAL MGMT. (LL)-W/MINDTAP
Ch. 18 - Prob. 1QTDCh. 18 - Prob. 2QTDCh. 18 - Prob. 3QTDCh. 18 - Prob. 4QTDCh. 18 - Prob. 5QTDCh. 18 - Prob. 6QTDCh. 18 - Prob. 7QTDCh. 18 - Prob. 8QTDCh. 18 - Prob. 9QTDCh. 18 - Prob. 10QTD
Ch. 18 - Prob. 11QTDCh. 18 - Prob. 12QTDCh. 18 - Prob. 13QTDCh. 18 - Prob. 14QTDCh. 18 - Prob. 15QTDCh. 18 - Prob. 16QTDCh. 18 - Prob. 17QTDCh. 18 - Prob. 18QTDCh. 18 - Prob. 19QTDCh. 18 - Prob. 20QTDCh. 18 - Prob. 21QTDCh. 18 - Prob. 22QTDCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - Prob. 3PCh. 18 - Prob. 4PCh. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - Prob. 7PCh. 18 - Prob. 8PCh. 18 - Prob. 10PCh. 18 - Prob. 11PCh. 18 - Prob. 12PCh. 18 - Prob. 13PCh. 18 - Prob. 14PCh. 18 - Prob. 15PCh. 18 - Prob. 16PCh. 18 - Prob. 17PCh. 18 - Prob. 18PCh. 18 - Prob. 19PCh. 18 - Prob. 20PCh. 18 - Prob. 21P
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