Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This was my assignment and my answers are below please let me know if I did correctly. If you agree with my answers PLEASE TELL

This was my assignment and my answers are below please let me know if I did correctly. If you agree with my answers PLEASE TELL ME WHY YOU AGREE AND IF DISAGREE PLEASE TELL ME WHY

Banks charge fees for bounced checksthat is, checks that exceed the balance in the account. It has been estimated that processing bounced checks costs a bank roughly $1.50 per check. Thus, the profit margin on bounced checks is very high. Recognizing this, some banks have started to process checks from largest to smallest. By doing this, they maximize the number of checks that bounce if a customer overdraws an account. For example,NationsBank (now Bank of America) projected a $14 million increase in fee revenue as a result of processing largest checks first. In response to criticism, banks have responded that their customers prefer to have large checks processed first, because those tend to be the most important. At the other extreme, some banks will cover their customers bounced checks, effectively extending them an interest-free loan while their account is overdrawn. Richard Coulsen had a balance of $1,500 in his checking account at First National Bank on a day when the bank received the following five checks for processing against his account.

Check Number

Amount

Check Number

Amount

3150

$35

3165

$550

3162

400

3166

1,510

3169

180

(a) Assuming a $30 fee assessed by the bank for each bounced check, how much fee revenue would the bank generate if it processed checks (1) from largest to smallest, (2) from smallest to largest, and (3) in order of check number?

(b) Do you think that processing checks from largest to smallest is an ethical business practice?

(c) In addition to ethical issues, what other issues must a bank consider in deciding whether to process checks from largest to smallest?

(d) If you were managing a bank, what policy would you adopt on boucned checks?

(A) 1. $150

2. $30

3. $60

(B) I do not think that it is an ethical practice to process the checks from largest to smallest if the reason is to charge customers fees and make additional profit. However, if all the checks are written on the same date or come in around the same time then that is not the banks fault, it is the customers.

(C) In addition to ethics the banks must pick a time frame in which the checks will be processed. They cannot hold on to them for a long period of time just to accrue a large amount of checks, which can in turn make a customers account become overdrawn.

(D) If I were a bank manager I would adopt the policy that the checks must be processed in the order received. If multiple checks are received in the same day then they will be processed in order of check number.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

What are the components of the sales variance?

Answered: 1 week ago