Andrews Corporation Buys on Terms of 2/8, Net 45 Days

question 71

Multiple Choice

Andrews Corporation buys on terms of 2/8, net 45 days, it does not take discounts, and it actually pays after 58 days.What is the effective annual percentage cost of its non-free trade credit? (Use a 365-day year.)

• A) 14.34%
• B) 15.10%
• C) 15.89%
• D) 16.69%
• E) 17.52%

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Definitions:

Parent Assets

Assets held by a parent company, including those arising from investments in subsidiaries and other entities over which the parent company has control.

Carrying Amount

The book value of assets and liabilities that is reported in the financial statements, calculated as the original cost minus any depreciation, amortization, or impairment costs made against the asset.

Fair Value

The financial figure anticipated when disposing of an asset or the price to move a liability in a regulated exchange involving market entities on the date of valuation.

Gain On Bargain Purchase

Occurs when a company acquires another company for a price less than the fair market value of its net assets, resulting in a gain on the acquisition balance sheet.