Ronald Is Borrowing $20,000 Using the Discount Method

question 71

Multiple Choice

Ronald is borrowing $20,000 using the discount method.His bank is offering him an annual percentage rate of 8.5% and he is taking out the loan for 24 months.How large of a check will Ronald receive from this loan when he leaves the bank? How much will he repay?

• A)$20,000;$23,400
• B)$16,600;$20,000

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Definitions:

Intra-entity Gross Profits

Profits realized from transactions conducted within the same legal entity, often requiring elimination for accurate consolidated financial reporting.

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, by recording profits proportional to their ownership percentage.

Inventory

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in rendering services.

Journal Entry

A record in accounting that notes the debit and credit transactions affecting the financial statements of a business.