Question

L07-2 Concept Check: Effective Interest Rates Jenks borrowed $13,000,000 from a bank at a 10% rate of interest. The bank requires Jenks to maintain a $3,000,000 compensating balance. What is Jenks' effective interest rate? a. 7.7% b. 10% c. 13% d. 23% advogo

Answer 1

Ans: C)13% 1) Calculate effective interest rate: S13,000,000x ($13,000,000 $3,000,000) 10% Effective interest rate= S1,300,000 $10,000,000 = 13 %

2) Ans: D) Total revenue is higher under the gross method than under the net method (total revenue is actually the same under the two methods) 3) Ans: D) $2,000 Total estimated returns $1,000,000 x 1% Total estimated returns $10,000 Estimated returns to accrue $10,000 $8,000 Estimated returns to accrue $2,000 4) Ans: D) $1,200 Total estimated returns $1,000,000 x 1% Total estimated returns $10,000 Estimated returns to accrue $10,000 $8,000 $2,000 Estimated returns to accrue Estimated cost of returns to accrue $2,000 x 60 % Estimated cost of returns to accrue $1,200

Ans: C) Accounts title and explanation Allowance for uncollectible accounts $40,000 5) Date Credit Debit $40,000 Accounts receivables 6) Ans: A) $0 Journal entry for the transaction: Date Accounts title and explanation Merchandise Note payable Debit Credit $10,000 $10,000 Therefore, the sale revenue from the transaction is $0