A Furniture Store Is Offering Free Credit on Purchases Over

question 54

Multiple Choice

A furniture store is offering free credit on purchases over $1,000.You observe that a big-screen television can be purchased for nothing down and $4,000 due in one year.The store next door offers an identical television for $3,650 but does not offer credit terms.Which statement below best describes the cost of the "free" credit?

• A) 8.75%
• B) 9.13%
• C) 9.59%
• D) 0%

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Definitions:

Consolidated Statement of Retained Earnings

A financial statement that shows the changes in a corporation's retained earnings over a specific period, combining the retained earnings of the parent company with those of its subsidiaries.

FVE Method

Refers to the Fair Value Evaluation method, a technique for assessing an asset's worth at its current market value.

Consolidated Net Income

The total amount of net income earned by a parent company and its subsidiaries, after intercompany transactions have been eliminated.

Equity Method

An accounting technique used by a company to record its investment in another company where it has significant influence but not full control, usually through the ownership of 20-50% of the voting stock.