Problem 16-17 Firm Value [LO2] Change Corporation expects an EBIT of $25,000 every year forever. The company currently has no de
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Answer:
Explanation:
Answer:
On Dec 31, 2012 Lee's liability would be $9,500 (principal amount) and $38 (accrued interest)
Explanation:
Lees notes:
Dec. 13 Accepted a $9,500, 45-day, 8% note dated December 13 in granting Miranda Lee a time extension on her past-due account receivable.
First interest due = $9,500 x 8% x 45/360 = $95
On the 31st 18 days would have accrued of the 45days = 18/45 x $95 = $38
On Dec 31, 2012 Lee's liability would be $9,500 (principal amount) and $38 (accrued interest)
Debit Miranda Lee with $9,538
Credit interest on Receivables $38
Credit Account receivables account with $9,500
When the full interest became due we will pass an additional entry:
Dr. Lee with $58
Cr. Interest on receivables with $58
(Being the balance interest on receivables due )
On Jan 27 when Lee paid her interest and principal amount, we will:
Debit Account receivables with $9,500
Debit interest on receivables Account with $95
Credit Tomas account with $9,595
( being liquidation of Lee's indebtedness)
Tomas notes:
Mar 3, Accepted a $5,000, 10%, 90-day note dated March 3 in granting a time extension on the past-due account receivable of Tomas Company.
Let's recognize the full interest due first:
$5,000 x 10% x 90/360 = $125
At this time we will:
Debit Tomas with $5,125
Credit interest on receivables with $125
Credit Account Receivables account with $5,000
On June 1 when Tomas paid his interest and principal amount, we will:
Debit Accounts receivable with $5,000
Debit interest on receivables with $125
Credit Tomas account with $5,125
( being liquidation of Tomas indebtedness)
Hiroshi Cheng notes:
Accepted a $2,000, 30-day, 9% note dated March 17 in granting Hiroshi Cheng a time extension on his past-due account receivable.
Interest = $2,000 x 9% x 30/360 = $15
The entries recognizing this liability will be to :
Debit Cheng Account with $2,015
Credit interest on receivables with $15
Credit Accounts receivable with $2,000
(Being receivables payable balance and interest on balance owed by Cheng)
However Cheng failed in paying up. It was decided to write off the debt.
The entries would be:
Dr. Accounts receivables $2,000
Dr. Interest on Accounts receivables with $15
Cr. Cheng's Account with $2,015
(Being debt owed by Cheng written off)
