A Company Known as Standard Quality Importing Ships Videocassette Recorders

A company known as Standard Quality Importing ships videocassette recorders made in Japan to retail dealers in the United States and Western Europe. It decides to place an order with its Japanese supplier for 10,000 Hi-Fi VCRs at $575 each after securing a line of credit from Guaranty Security Bank in Los Angeles. Guaranty issues a credit letter to the Japanese supplier promising payment in U.S. dollars 90 days hence. However, the Japanese firm needs the promised funds within seven days from receipt of the credit letter to make purchases of technical components from an electronics firm in Phoenix, Arizona. Explain and illustrate with T accounts and diagrams how a bankers' acceptance would arise from the foregoing transactions, how the Japanese supplier could receive the dollars she needs in timely fashion and what would happen to the acceptance at the end of the 90-day period. Use T account entries to show the movement of funds from the importer to the Japanese supplier, to the electronics firm and to money market investors.