Use the Information to Answer the Following Question(s)

question 26

Multiple Choice

Use the information to answer the following question(s) .
Jackson Automotive Inc. of California agrees to sell specialized automotive parts to Hidatsi of Korea. Because the two companies have never done business with each other, Jackson requires a banker's acceptance as payment for the $1,000,000 order. The banker's acceptance carries a 1.4% commission per annum and payment is to be received in 6 months. If Jackson Inc. chooses to discount or sell the bankers acceptance to its bank, the discount rate is 1.00% per annum.
-Refer to Instruction 15.1. What is the size of the discount (not including the commission fee) Jackson must take for receiving the proceeds of the sale today rather than waiting for six months?

• A) $7,000
• B) $5,000
• C) $12,000
• D) $14.000

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Definitions:

Net Operating Loss Carryforward

A tax provision that allows a company to utilize a taxable loss in one period to offset taxable profits in future periods.

Consolidated Financial Statements

Financial statements that combine the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries.

Tax Rate

The rate at which taxes are levied on an individual or a corporation's income.

Consolidated Tax Returns

A single tax return filed by a parent company and its subsidiaries as one taxpayer to IRS, consolidating their tax liabilities.