Question

In: Finance

Madison Corner writes 26 checks a day for an average amount of $481 each. These checks...

Madison Corner writes 26 checks a day for an average amount of $481 each. These checks generally clear the bank 3.75 days after they are written. In addition, the firm generally receives 63 checks with an average amount of $538 each. Deposited amounts are available after an average of 3.25 days. What is the amount of the firm's collection float?

a)$12506

b)$33894

c) $63,258

d) $110156

Solutions

Expert Solution

Please note the solution,

1) Concept

> The float represents the net effect of checks in the process of clearing.

> A common measure of a float is the Average Daily Float, calculated by dividing the total value of checks that are in the process of the collection during a specified period by the number of days in the period.

> The total value of checks in the process of collection is calculated by multiplying the amount of float by the number of days it is outstanding.

2) Calculation

> Total value of checks in the process of collection = 538 * 63 * 3.25

                                                                                 = 110156

> Average daily float = 110156 / 3.25

                                 = $ 33894 Answer

Option B is correct.

Hope you understand the solution.

jeff jeffy answered 1 year ago
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