Question

The cost of giving up a cash discount under the terms of sale​ 1/10 net 60​ (assume a 365day​ year) is

A.

7.4

B.

​ 6.1%

C.

​ 7.2%

D.

​14.7%

On its 2019 balance​ sheet, Sherman Books showed a balance of retained earnings equal to​ $510 million. On its 2020 balance​ sheet, the balance of retained earnings was equal to​ $520 million. Which of the following statements is most​ correct?

A.

If the company sold​ $10 million of newly issued common stock in​ 2020, then the​ company’s net income in 2020 must have been​ $20 million.

B.

The company must have paid a dividend in 2020.

C.

If the​ company’s net income in 2020 was​ $10 million, the company paid dividends of​ $20 million.  

D.

If the​ company’s net income in 2020 was​ $20 million, the company paid dividends of​ $10 million.  

Answer 1

1)Correct option is "A"-7.4%

cost of trade discount =[Discount % /(1-Discount % ) ]* [365 /(normal payment days- discount days )]

               = [.01/(1-.01) ] * [365 /(60-10)]

              = [.01/.99 ]*[365/50]

              = .0101010* 7.3

              = .074 or 7.4%

2)correct option is "D"- If the​ company’s net income in 2020 was​ $20 million, the company paid dividends of​ $10 million. 

Ending retained earning =Beginning retained earning +net income -dividend

                = 510 + 20 - 10

                = $ 520 million

which is equals to balance as reported .