Question

In: Finance

On a typical day, a company writes 72 checks worth a total of $10,540 that clear...

On a typical day, a company writes 72 checks worth a total of $10,540 that clear in 2.25 days. The company also collects 85 checks worth a total of $14,635 that clear in 1.75 days. Is this a collection or disbursement float? What is the float value? Multiple Choice A collection float of $2,053 A collection float of $4,095 A disbursement float of $1,896 A collection float of $1,896 A disbursement float of $4,095

Expert Solution

Solution :

The formula for calculating the Disbursement float = Total Amount disbursed through checks * No. of days required for check clearance

As per the information given in the question we have

Total Amount disbursed through checks = $ 10,540 ; No. of days required for clearance = 2.25 days ;

Thus the Disbursement float = $ 10,540 * 2.25 = $ 23,715

The formula for calculating the Collection float = Total Amount collected through checks * No. of days required for check clearance

As per the information given in the question we have

Total Amount collected through checks = $ 14,635 ; No. of days required for clearance = 1.75 days

Thus the Collection float = $ 14,635 * 1.75 = $ 25,611.25

Since the collection float is greater than disbursement float, the float is a collection float.

Thus the Net collection Float is = Collection float - Disbursement float

= $ 25,611.25 - $ 23,715

= $ 1,896.25

= $ 1,896 ( when rounded off to the nearest whole number )

The collection float = $ 1,896

Thus the solution is Option 4: A collection float of $ 1,896

jeff jeffy answered 1 year ago

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