A20 determine whether interest was accruedthe entry

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a20 Determine whether interest was accrued.The entry here assumes that no interest has been previously accrued on this note. Gambit Stores accepts from Leonard Co. a $3,400, 90-day, 12% note dated May 10 in settlement of Leonard’s overdue account. (a) What is the maturity date of the note? (b) What is the entry made by Gambit at the maturity date, assuming Leonard pays the note and interest in full at that time? Solution (a) The maturity date is August 8, computed as follows. Term of note: 90 days May (31 H11002 10) 21 June 30 July 31 82 Maturity date:August 8 (b) The interest payable at the maturity date is $102, computed as follows. Face H11003 Rate H11003 Time H11005 Interest $3,400 H11003 12% H11003 90/360 H11005 $102 The entry recorded by Gambit Stores at the maturity date is: Cash 3,502 Notes Receivable 3,400 Interest Revenue 102 (To record collection of Leonard note) Related exercise material: BE9-9, BE9-10, BE9-11, E9-10, E9-11, E9-12, E9-13, and DO IT! 9-3. The Navigator a19 PDF Watermark Remover DEMO : Purchase from to remove the watermark
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414 Chapter 9 Accounting for Receivables STATEMENT PRESENTATION AND ANALYSIS Presentation Companies should identify in the balance sheet or in the notes to the financial statements each of the major types of receivables. Short-term receivables appear in the current assets section of the balance sheet, below short-term investments. Short-term investments appear before receiv- ables, because short-term investments are more liquid (nearer to cash). Companies report both the gross amount of receivables and the allowance for doubtful accounts. In a multiple-step income statement, companies report bad debts expense and service charge expense as selling expenses in the operating expenses section. Interest revenue appears under “Other revenues and gains” in the nonoperating activities section of the income statement. Analysis Investors and corporate managers compute financial ratios to evaluate the liquid- ity of a company’s accounts receivable. They use the accounts receivable turnover ratio to assess the liquidity of the receivables. This ratio measures the number of times, on average, the company collects accounts receivable during the period. It is computed by dividing net credit sales (net sales less cash sales) by the average net accounts receivable during the year. Unless seasonal factors are significant, aver- age net accounts receivable outstanding can be computed from the beginning and ending balances of net accounts receivable. For example, in 2007 Cisco Systems had net sales of $29,462 million for the year. It had a beginning accounts receivable (net) balance of $3,303 million and an ending accounts receivable (net) balance of $3,989 million. Assuming that Cisco’s sales were all on credit, its accounts receivable turnover ratio is computed as follows.
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