A Company Receives A Note Payable For $3,500 At 9 For 45 Day

A Company Receives A Note Payable For 3500 At 9 For 45 Days H

A company receives a note payable for $3,500 at 9% interest for 45 days. Calculate the interest the customer will owe, using a 360-day year (rounded to the nearest cent).

Additionally, determine the maturity value of a 69-day note for $1,500 at 7% annual interest, rounded to the nearest cent.

Tammy Industries mistakenly recorded a $5,000 betterment as an ordinary expense. Explain the consequences of this error on the company's financial statements.

Identify which of the following is not considered a contingent liability: pending legal action, potential fines from the EPA, cosigning a loan, or mortgage payable.

Discuss poor internal control indicators over accounts receivable, such as handling cash receipts and recording transactions.

Describe how to handle depletion expense when the extracted amount varies yearly over four years.

Outline the procedure for reinstating a customer's account after it has been written off, including relevant journal entries.

Identify which assets qualify as cash equivalents, and explain the depreciation calculation using double-declining balance for furniture purchased on January 1, 2012, with given cost, salvage value, and useful life.

Classify warranty liabilities and discuss the accounting principles used to estimate them.

Explain effect of not accruing warranty expenses incorrectly on reported liabilities and net income.

Determine which items are contingent liabilities among legal actions, mortgage obligations, accounts payable, or sales tax obligations.

Identify which marketable securities are reported at cost, specifically available-for-sale, trading, or held-to-maturity securities.

Discuss benefits and drawbacks of extending credit to customers, and explain depreciation calculation under units of production for a machine purchased for $125,000 with an estimated salvage value and production units.

Calculate the effect of treasury stock transactions on paid-in capital in excess of par.

Determine the common-size percentage of cash relative to total assets.

Calculate net cash flow from operating activities using the indirect method, considering net loss, depreciation, and changes in supplies.

Describe the components of stockholders' equity in the Isaiah Corporation, including preferred and common stock, and retained earnings; compute total par value of stock.

Explain the preemptive right and how many new shares an existing shareholder can purchase when new shares are issued.

Determine the distribution of dividends to preferred and common stockholders under specific conditions, including arrears.

Identify the base item used in vertical analysis of the income statement.

Discuss how to verify the accuracy of the statement of cash flows and the significance of changes in asset and liability accounts.

Compute the rate of return on stockholders' equity and common stockholders' equity given net income, preferred dividends, and stockholders’ equity figures.

Evaluate the net effect on cash from operations when accounts receivable increase and accounts payable decrease.

Contrast the activities computed differently using the two methods of cash flow statements—operating, investing, or financing activities.

Explain why net income and cash do not match on the balance sheet, and identify the appropriate financial statement that clarifies this discrepancy.

Discuss which sections of the income statement report net of taxes or exclude tax effects, such as discontinued operations or extraordinary items.

Calculate cash flow from operating activities considering changes in accounts receivable and net income.

Determine vertical analysis percentages for cost of goods sold relative to net sales, before and after sales increase.

Describe journal entries for exchanging stock for equipment, noting what accounts are debited and credited, particularly the allocation between common stock and additional paid-in capital.

Calculate the amount credited to common stock upon declaring a stock dividend, given the number of shares, par value, and market price.

Assess the cash conversion cycle for Ryan Industries based on days sales in inventory, accounts payable, and receivable turnovers.

Analyze the balance of the Paid-in Capital—Treasury Stock account after selling treasury shares at a different price from the reacquisition cost.

Paper For Above instruction

The financial activities of companies involve diverse transactions including notes payable, interest calculations, asset management, and equity transactions. This paper explores these aspects by addressing specific scenarios and applying fundamental accounting principles to analyze transactions, estimate liabilities, compute depreciation, and evaluate financial statement impacts.

Interest Calculations on Notes Payable

When a company receives a note payable, such as $3,500 at 9% interest for 45 days, interest expense needs to be calculated to understand the total amount owed by the customer. Using a 360-day year simplifies the calculation; interest is computed as Principal × Rate × Time/360. Substituting the values, Interest = $3,500 × 9% × 45/360 = $39.38 (rounded to nearest cent). Therefore, the customer owes approximately $3,539.38 at maturity. Similarly, for the 69-day note for $1,500 at 7%, the interest is $1,500 × 7% × 69/360 ≈ $20.13, leading to a maturity value of approximately $1,520.13.

Ignoring rounding differences, the options given suggest close approximations: interest owed for the 45-day note is D. $39.00, and the maturity value for the 69-day note is D. $1,520.13.

Consequences of Recording Betterment as Expense

Recording a $5,000 betterment as an expense improperly affects financial statements. The asset, which should be capitalized, is understated, leading to understated assets on the balance sheet. Additionally, expenses are overstated, reducing net income. Retained earnings, being part of shareholders’ equity, decrease due to the overstated expenses, causing understatements in shareholders' equity. The misclassification results in overstated expenses and understated net income, which impairs proper financial analysis.

Contingent Liabilities

Contingent liabilities are potential obligations that depend on the occurrence of future events. Pending legal actions and potential EPA fines qualify as contingent liabilities because they depend on future outcomes. Co-signing a loan is a guarantee, a potential liability contingent on borrower default, thus also a contingent liability. Conversely, a mortgage payable is a recognized liability, not contingent, because it is an existing obligation.

Internal Control Over Accounts Receivable

Internal control weaknesses include situations where the same person handles cash receipts and records receivables, increasing risk of fraud. Proper segregation of duties, such as having different employees handle cash receipts and recording transactions, is a good control. Also, accurately passing receipts and recording them prevents misappropriation. If employees who handle cash do not have the authority to write off uncollectible accounts, it reduces potential conflicts and fraud—indicating strong internal control.

Depletion Expense with Variable Extraction

When the amount of natural resource extracted varies each year, depletion expense must be recalculated annually based on the remaining reserve and the units extracted that year. Recomputing the depletion rate per unit each year is necessary to match expense with the actual resource extracted, ensuring an accurate reflection of resource depletion over time.

Reinstatement of a Customer’s Account

Reinstating a customer's account that was previously written off involves reversing the write-off. First, the company debits Accounts Receivable for the amount owed, and credits Allowance for Doubtful Accounts, restoring the account balance. When the customer pays part of the amount, cash is debited, and accounts receivable is credited accordingly.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have insignificant risk of changes in value. Examples include Treasury bills, money market funds, and marketable securities bought with the intent to resell in the short term. Checks and currency are not investments, but time deposits and money orders can qualify as cash equivalents.

Depreciation Using Double-Declining Balance

For furniture purchased at $15,600 with a residual value of $1,600 and a useful life of three years, double-declining balance depreciation accelerates expense recognition early in the asset's life. The depreciation expense for 2012, calculated as double the straight-line rate multiplied by book value at the start of the year, is approximately $10,400.

Warranty Liabilities

Warranties represent estimated future costs arising from current obligations. They are classified as estimated liabilities, which are recognized based on the matching principle, using historical data and statistical methods to estimate costs. Estimating warranty liabilities involves applying the conservatism principle to ensure liabilities are not understated.

Impact of Not Accruing Warranty Expenses

Failing to accrue warranty expenses results in understated liabilities, as future obligations are not recognized. Consequently, net income is overstated because expenses are understated, leading to inflated profitability in financial reports.

Potential Contingent Liabilities

Legal actions pending and certain guarantees or potential liabilities, such as co-signed loans, are considered contingent liabilities. Normal operating payables or sales tax obligations are recognized liabilities, not contingent.

Marketable Securities Reported at Cost

Held-to-maturity securities are reported at amortized cost on the balance sheet, while trading and available-for-sale securities are marked to market. Therefore, the correct answer is C. held-to-maturity securities.

Benefits and Drawbacks of Extending Credit

Extending credit can increase profits, revenues, and broaden customer base, but it also introduces the risk of bad debts affecting profitability. Proper credit management balances potential gains against the risk of default.

Units of Production Depreciation Calculation

A machine costing $125,000 with a salvage value of $10,000, estimated to produce 50,000 units, produces 14,500 units in the first year. The depreciation expense is calculated as (Cost - Salvage) / Total units × Units produced: ($125,000 - $10,000)/50,000 × 14,500 ≈ $33,350.

Journal Entries for Treasury Stock Transactions

When Casey Company resells treasury stock, the amount credited to Paid-in Capital—Treasury Stock is the excess of sale price over the cost. For example, selling 2,000 shares bought at $13 per share for $17 yields a credit of ([$17 - $13] × 2,000) = $8,000 to Paid-in Capital—Treasury Stock.

Common-Size Financial Ratios

The common-size percentage of cash relative to total assets with assets of $6,000 and cash of $2,400 is ($2,400 / $6,000) × 100% = 40%.

In conclusion, understanding the intricacies of these financial scenarios requires applying fundamental accounting principles, such as interest calculations, asset depreciation, liability recognition, and financial statement analysis, which are critical for accurate financial reporting and decision-making.

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