Upstate Farms Factors Its Accounts Receivable Immediately at a Discount

question 16

Multiple Choice

Upstate Farms factors its accounts receivable immediately at a discount of 2.5 percent.The average collection period is 39 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement? Assume a 365-day year.

• A)29.97%
• B)26.74 %
• C)30.78%
• D)27.90%
• E)28.33%

---

Definitions:

General Ledger

A comprehensive accounting record of all transactions that have occurred in a business over a period of time.

Receiving Report

A document that records the details of goods received by a company, often used to verify deliveries and invoice payments.

Predetermined Overhead Rate

A predetermined overhead rate is an estimated rate used to assign overhead costs to products or job orders, based on a specific activity base.

Budget Data

Financial plans containing detailed projections of revenues and expenses for a future period, often used for management control and planning.