Chapter 6 sample test

# Chapter 6 sample test - Chapter 6 sample test 1. The First...

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Chapter 6 sample test 1. The First Corporation borrowed \$100,000 on January 22 by signing a 90-day, 10% note. The loan and interest are to be paid on April 21. What is the dollar amount of the First Corporation’s January interest expense for the loan? The key to this problem is to recognize that interest = principal x interest rate x time. The company's interest expense in January would be \$273.97 [\$100,000 (principal) x .10 (annual interest rate) x 10/365 (number of days for which the cash was borrowed in January / number of days in the year)]. The company borrowed the cash on January 22 and used it through January 31, which is a total of 10 days. Interest expense for the remaining 80 days of the loan will be recorded in future months. See text exercise 6.1 for similar material. 2. The Second Corporation borrowed cash in February and calculated its February interest expense to be \$1,000. The interest is to be paid on April 12. Prepare the journal entry the company would make to record its February interest expense. The keys to this problem are to recognize that expenses increase with debits and liabilities increase with credits. The interest payable liability increases because the interest will not be paid until April. Date Description Debits Credits Feb. 28 Interest Expense 1,000 Interest Payable 1,000 February interest expense See text exercise 6.1 for similar material. 3. The Third Corporation engaged in the following transactions with its customers in March. March 3: provided services to customers and received \$800 cash. March 9: provided \$700 of services to customers who promised to pay on June 11. March 15: received \$300 from customers for services provided to them on February 14. Determine the company’s fees revenue for March. The key to this problem is to recognize that revenues are increases in resources resulting from management activities, usually related to customers. On March 3 and March 9, the company's resources increased from management providing services to customers. On March 15, the company's resources did not increase. Total resources stayed the same, even though cash increased and accounts receivable decreased. So, the company's revenues in March were \$1,500. Resources = Sources of Resources

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Resources = Borrowed Resources + Owner Invested Resources + Management Generated Resources + \$800 = \$0 + \$0 + + \$800 + \$700 = \$0 + \$0 + + \$700 + \$300 - \$300 = \$0 + \$0 + \$0 \$1,500 = \$0 + \$0 + \$1,500 See text exercise 6.2 for similar material. 4. The Fourth Corporation engaged in the following events in April. April 3: \$225 of supplies were purchased on account. April 10: \$300 cash was paid for rent of the office for April and \$300 cash was paid for rent of the office for May. April 15: employees were paid \$1,800 for services they provided to the Fourth
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## This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter 6 sample test - Chapter 6 sample test 1. The First...

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