(Cost of trade credit) Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms

A14. (Cost of trade credit) Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms. Calculate the APR and the APY.
a. 5/10, net 50
b. 3/15, net 30
c. 2/10, net 20

Click here for the solution: Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms

Grande Stores is a large discount catalog department store chain

Auditing P 7-41 Grande Stores is a large discount catalog department store chain. The company has recently expanded from 6 to 43 stores by borrowing from several large financial institutions and from a public offering of common stock. A recent investigation has disclosed that Grande materially overstated net income. This was accomplished by understating accounts payable and recording fictitious supplier credits that further reduced accounts payable. An SEC investigation was critical of the evidence gathered by Grandes audit firm, Montgomery & Ross, in testing accounts payable and the supplier credits.

The following is a description of some of the fictitious supplier credits and unrecorded amounts in accounts payable, as well as the audit procedures.

AND SO ON

Required:
Identify deficiencies in the sufficiency and appropriateness of the evidence gathered in the audit of accounts payable of Grande Stores.


Click here for the solution: Grande Stores is a large discount catalog department store chain

E14-5 Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount

E14-5 (Entries for Bond Transactions—Effective-Interest) Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2011.
(c) The accrual of interest and the related amortization on December 31, 2011.

Click here for the solution: Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount

The following three one-year "discount" loans are available to you

1. The following three one-year "discount" loans are available to you:

Loan A: $120,000 at a 7 percent discount rate
Loan B: $110,000 at a 6 percent discount rate
Loan C: $130,000 at a 6.5 percent discount rate

a. Determine the dollar amount of interest you would pay on each loan and indicate the amount of net proceeds each loan would provide. Which loan would provide you with the most upfront money when the loan takes place?
b. Calculate the percent interest rate or effective cost of each loan. Which one has the lowest cost?

Click here for the solution: The following three one-year "discount" loans are available to you

Compute the effective cost of not taking the cash discount under the following trade credit terms

Problem 4: Compute the effective cost of not taking the cash discount under the following trade credit terms:
a. 2/10 net 40
b. 2/10 net 50
c. 3/10 net 50
d. 2/20 net 40

Problem 5: What conclusions can you make about credit terms from reviewing your answers to Problem 4?

Click here for the solution: Compute the effective cost of not taking the cash discount under the following trade credit terms

Prepare a debt amortization schedule for a bond issued at discount

Prepare a debt amortization schedule for a bond issued at discount. Assume that the bond matures in 12 years with market interest rate at time of issue—10% annually and 5% semiannually. The stated interest rate is 8%. The interest is paid semiannually.

Click here for the solution: Prepare a debt amortization schedule for a bond issued at discount