When a Company Sells a Customer's Note to a Bank

question 24

Multiple Choice

When a company sells a customer's note to a bank, the discount rate is

• A) the interest rate charged by the bank.
• B) the interest rate charged to the customer.
• C) an unstated implicit interest rate.
• D) the effective annual interest rate.

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Definitions:

Average Cost

A method of inventory costing that determines the cost of goods sold and ending inventory based on the weighted average cost of all purchases.

Gross Profit Method

A technique used to estimate the amount of ending inventory using the gross profit margin.

Net Realizable Value

The expected selling price in the ordinary course of business minus the estimated costs of completion and the costs necessary to make the sale.

Normal Selling Price

The standard amount charged to customers for a good or service under normal market conditions.