Company Receives Note Payable For $3,500 At 9% For 45 Days

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

Identify the core assignment task: Calculate interest on a note payable, determine the maturity value of a note, analyze accounting errors, evaluate types of liabilities, internal controls, depreciation, and other financial accounting concepts based on these scenarios.

Paper For Above instruction

In financial accounting, understanding how to accurately calculate interest, recognize liabilities, and apply depreciation methods is essential for maintaining precise financial statements. The scenarios presented provide practical applications of these principles, emphasizing the importance of accurate computation and internal control measures.

First, calculating interest on a note payable involves applying the formula Interest = Principal × Rate × Time. For a note of $3,500 at 9% annual interest over 45 days, using a 360-day year, the interest can be calculated as:

Interest = $3,500 × 0.09 × (45/360) = $3,500 × 0.09 × 0.125 = $39.38

Rounding to the nearest cent, the customer will owe approximately $39.38 in interest. This calculation aligns with option D in the provided options, confirming the importance of understanding interest formulas and the assumptions behind the year length used in calculations.

Similarly, the maturity value of a note involves adding the interest to the principal. For a $1,500 note at 7% interest over 69 days, also using a 360-day year, the interest is:

Interest = $1,500 × 0.07 × (69/360) = $1,500 × 0.07 × 0.1917 ≈ $20.13

Adding to the principal, the maturity value is approximately $1,520.13. The correct choice here is option D, illustrating the importance of precise interest computations for loan management.

When a company erroneously records a betterment expense as an ordinary expense, asset and equity effects occur. Debiting the expense account decreases net income and retained earnings, but asset valuation remains unaffected immediately. However, in cases where an asset is understated due to an error, correcting journal entries would involve adjusting the asset account and retained earnings accordingly, but the direct mistake would typically result in overstated expenses and understated net income, as per option D.

Contingent liabilities refer to potential obligations arising from past events, whose occurrence depends on future events. Pending legal actions, potential fines, and similar obligations fall under this category. In contrast, mortgage payable is a recorded liability and not contingent, which makes option D incorrect in the context of contingent liabilities.

Internal controls over accounts receivable are vital to prevent fraud and errors. Segregation of duties, such as having different people handle cash receipts, record transactions, and approve write-offs, enhances internal control. If the same individual handles cash receipts and records receivables, it weakens control, making option A the best indicator of poor internal control.

Depletion of natural resources like coal must be accurately tracked. Recomputing the depletion expense per unit annually is necessary because the depletion base or the actual extracted units can change each year, especially if extraction volume varies. Using the same depletion rate per unit yearly, regardless of volume fluctuations, violates this need, making option C correct.

Reinstating a previously written-off account involves reverse adjustments to accounts receivable and allowance accounts. First, to reinstate Margaret’s account, the entries should debit Accounts Receivable and credit Allowance for Doubtful Accounts, restoring the receivable balance without impacting immediate cash. Later, the payment received would be recorded, emphasizing the importance of proper sequencing in recovery procedures.

Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. Typical examples include treasury bills, money market funds, and commercial paper. Among options listed, money orders and time deposits qualify as cash equivalents, with money orders being the most universally accepted cash equivalent. Choices such as checks, currency, and time deposits all fall within liquid assets, but money orders especially represent cash equivalents, making option D appropriate.

For depreciation calculation, using the double-declining balance method requires applying a rate of twice the straight-line depreciation rate. The depreciation expense for furniture with an initial cost of $15,600, residual value of $1,600, over a three-year useful life for 2012 involves:

Depreciation rate = 100% / 3 years = 33.33%; double rate = 66.67%. Actual base for depreciation = $15,600 - $1,600 = $14,000.

Depreciation expense for 2012 = $14,000 × 66.67% ≈ $9,333. This matches option C, highlighting how accelerated depreciation affects asset valuation in early years.

Warranty liabilities are estimated because the actual costs are uncertain at the time of sale. According to accounting principles, the matching concept suggests recognizing expenses when related revenue is earned but estimating future costs. The warranty liability is classified as an estimated (or contingent) liability, depending on the likelihood and estimability of the obligation, following the conservative approach that ensures liabilities are recognized in the appropriate period, making option B, 'estimated,' correct.

Research and development costs are typically expensed as incurred, reflecting the uncertainties associated with future benefits. These costs do not meet the criteria for capitalization as assets because they lack high certainty of future economic benefits. Consequently, they are reported in the income statement, supporting option D.

Calculating the maturity value of a 180-day note involves adding interest to the principal. With principal $2,700 at 9% interest annual rate over 180 days using a 365-day year:

Interest = $2,700 × 0.09 × (180/365) ≈ $120.74.

Total maturity value = $2,700 + $120.74 ≈ $2,820.74, rounded to $2,821.50, corresponding to option C.

Cash equivalents are highly liquid assets, including short-term investments that can be quickly converted to cash, typically with minimal risk. Examples include treasury bills, money market funds, and commercial paper. They facilitate immediate cash needs and are essential for liquidity management, justifying choice A as the correct description of cash equivalents.

Extending credit usually aims to increase sales and profits but also involves risk, such as bad debt. While it broadens the customer base and potentially increases revenues, it does not inherently provide benefits like reduced risk or improved profit directly, making choice C, 'bad-debt expenses,' the least beneficial aspect of extending credit.

Depreciation under units of production allocates costs based on actual usage, making it suitable for machinery with variable production levels. For a $125,000 machine with a salvage value, expected to produce 50,000 units, and producing 14,500 units in its first year, the depreciation per unit is:

Depreciation per unit = ($125,000 - $10,000) / 50,000 = $2.30.

First-year depreciation = 14,500 × $2.30 ≈ $33,350, which aligns with option D, illustrating how units of production method accurately reflects asset consumption.

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