A Food Processing Plant Enters into a Contract with a Farmers

question 85

Multiple Choice

A food processing plant enters into a contract with a farmers' cooperative for the purchase of several thousand bushels of wheat at $6.50 per bushel to be delivered on November 15.The contract provides that there will be liquidated damages of $10,000 for each bushel of wheat that the cooperative fails to deliver.Which is true?

• A) Liquidated damages clauses are always valid if entered into before the actual breach.
• B) Because $10,000 is a relatively small amount,this liquidated damages clause is valid.
• C) This liquidated damages clause is invalid because it is excessive and because actual damages would be easy to compute if the wheat is not delivered.
• D) The liquidated damages clause would be reformed to $6.50 per undelivered bushel.

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Definitions:

Available-For-Sale

A classification for financial assets indicating that they can be sold in the future but are not held for active trading or intended to be held to maturity.

Net Income

This is the total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue, often referred to as the bottom line.

Trading Securities

Trading securities are a form of investments that a company plans to buy and sell over a short period of time with the intention of profiting from the market movements.

Realized Gain

The profit made from the sale of an asset, recognized when the asset is actually sold and the transaction is complete.