Diagnostic Test Item - Math Problem

[jaybird0827]

Anyone looking for a challenge?

The following item appeared on a 50-item Problem Solving Diagnostic Test that is given to middle schoolers (yeah, go figure).

A company was forced out of business by its competitor. It was able to pay 25 cents on the dollar, but had the company been able to collect a certain debt of $800, it could have paid 30 cents on the dollar. How much did the company owe at the time of its closing?

(A) $1,600
(B) $160,000
(C) $16,000
(D) $1,455
(E) $14,550

This was the only one that I couldn't figure out. How do we relate the $800 to what is owed?

Do we have any CPA's here?

 

[TimV]

X plus 800 = X plus 5%, since the difference between 25 cents and 30 cents is 5% on the dollar, so the answer is 16,000 ? (warning, I do manual labor so don't turn this in as an answer).

 

[smhbbag]

Forget equations and solving for variables. That just makes things messy

If I interpret the problem correctly, $800 is 5% of the debt.

So 800*20 is the answer, me thinks. My vote is for C, $16k.

I'm not a CPA, but I do tutor math for the SAT, so I should hope that I'm right

For what it's worth, the problem should be phrased better.

 

[Kenneth_Murphy]

I read the question they same way as Jeremy.

 

[vkochetta]

I put my plug in for C $16,000. I'm an accountant (cost mostly) so don't tell my employer if that's not correct!

 

[ChristianTrader]

I go with C) being the answer as well. I also concure with the question being phrased obtusely.

 

[Southern Presbyterian]

$16,000.00

$800.00 / $16,000.00 = $0.05, the only answer that fits.

 

[A5pointer]

you guys got it, "was able to pay" evidently, exegeted means "paid every cent they had on hand to settle".

 

[Kenneth_Murphy]

The "Message" version of the question, not wanting to overly tax the modern reader would restate the question as ...

A company that owed $16,000 was forced out of business by a competitor. How much did it owe?

 

[VictorBravo]

How much did the company owe at the time of its closing?

Assuming that the competitor wrote off the debt (and assuming the debt was owed to the competitor, otherwise how did it "force" it out of business?), the company also owes tax to the Fed for discarge of debt income. Figure it owes another $3,920 in taxes if it's a C corp.

 

[jaybird0827]

Thanks, guys. Not only for the solution, but for increasing my confidence that I wasn't the only one who thought that the question was poorly worded.

It makes sense now.