A Company Had the Following Partial List of Account Balances

question 52

Multiple Choice

A company had the following partial list of account balances at year-end: $$\begin{array} { | l | r | } \hline \text { Sales returns and allowances } & \$ 500 \\\hline \text { Trade receivables } & 9,000 \\\hline \text { Sales discounts } & 700 \\\hline \text { Sales revenues } & 57,200 \\\hline \text { Allowance for doubtful accounts } & 300 \\\hline\end{array}$$
-A company purchased goods on credit with credit terms of 3/15, n/45. Although the company does not have cash available to pay within the discount period, the manager of the company is considering borrowing money to take advantage of the discount. In order to make the appropriate decision, the manager computed the annual interest rate associated with the sales discount. What is the approximate annual rate?

• A) 18%.
• B) 25%.
• C) 38%.
• D) 56%.

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Definitions:

Discretionary Economic Policies

Economic policies based on judgment or choice rather than set rules, often involving government intervention in the economy through spending and taxation decisions.

Destabilizing

Causing or likely to cause a lack of stability in an economy or market, leading to uncertainty and potential financial downturns.

Equation of Exchange

A monetary theory equation that states the money supply multiplied by the velocity of money equals the price level times the quantity of goods and services sold (MV = PQ).

Interest Rate

The part of a loan that incurs interest fees for the borrower, customarily indicated as an annual percentage of the unpaid loan.