20 D8 E10-5 exerciseFAB Company sells a wide range of merchandise, which are initially purchased on account.Short-term notes are frequently issued to obtain cash.a) On January 10, FAB purchased $200 of merchandise on credit on a perpetual system.b) On March 1, FAB borrowed $600 by issuing a promissory note at face with 8 percentinterest accrued at the beginning of each month until paid at maturity in six months.c) On April 1, FAB accrued interest on the $600 note.NAMEd) On September 1, FAB paid the note and accrued interest.REQUIRED:1. On the spreadsheet below, record each event (a) to (d) above; name blank accounts.2. As each event is recorded, indicate its effect on FAB's current ratio, debt-asset ratio,and times interest earned: Increase, Decrease, or No effect. FAB had $3000 liabilitiesand $5000 total assets prior to January 10.Event--FAB Co.Beginning Balanca)buy merchandiseb) receive on notec) accrue interestfor March on Apr 1d) pay notepay interestEnding BALANCEa) buy mdse oncreditSCF Cash Inven-Classtory2500 2500Curnt Debt TimesRatioAsst Interstratio Earnd1000 10001000Comn Ret'd REStock Earn' Clas1000 1000 b) receive on notec) accrue Marchinterestd) pay notepay interest

The current ratio is computed by dividing the current asset by the current liabilities. A change in…

20 D8 E10-5 exercise FAB Company sells a wide range of merchandise, which are initially purchased on account. Short-term notes are frequently issued to obtain cash. a) On January 10, FAB purchased $200 of merchandise on credit on a perpetual system. b) On March 1, FAB borrowed $600 by issuing a promissory note at face with 8 percent interest accrued at the beginning of each month until paid at maturity in six months. c) On April 1, FAB accrued interest on the $600 note. d) On September 1, FAB paid the note and accrued interest. REQUIRED: 1. On the spreadsheet below, record each event (a) to (d) above; name blank accounts. NAME 2. As each event is recorded, indicate its effect on FAB's current ratio, debt-asset ratio, and times interest earned: Increase, Decrease, or No effect. FAB had $3000 liabilities and $5000 total assets prior to January 10. Event--FAB Co. Beginning Balanc a)buy merchandise b) receive on note c) accrue interest for March on Apr 1 d) pay note pay interest Ending BALANCE a) buy mdse on credit SCF Cash Inven- Class tory 2500 2500 ➖➖➖➖➖➖ Curnt Debt Times Ratio Asst Interst ratio Earnd 1000 1000 1000 Comn Ret'd RE Stock Earn' Clas 1000 1000 ➖➖➖➖➖

20 D8 E10-5 exercise FAB Company sells a wide range of merchandise, which are initially purchased on account. Short-term notes are frequently issued to obtain cash. a) On January 10, FAB purchased $200 of merchandise on credit on a perpetual system. b) On March 1, FAB borrowed $600 by issuing a promissory note at face with 8 percent interest accrued at the beginning of each month until paid at maturity in six months. c) On April 1, FAB accrued interest on the $600 note. d) On September 1, FAB paid the note and accrued interest. REQUIRED: 1. On the spreadsheet below, record each event (a) to (d) above; name blank accounts. NAME 2. As each event is recorded, indicate its effect on FAB's current ratio, debt-asset ratio, and times interest earned: Increase, Decrease, or No effect. FAB had $3000 liabilities and $5000 total assets prior to January 10. Event--FAB Co. Beginning Balanc a)buy merchandise b) receive on note c) accrue interest for March on Apr 1 d) pay note pay interest Ending BALANCE a) buy mdse on credit SCF Cash Inven- Class tory 2500 2500 ➖➖➖➖➖➖ Curnt Debt Times Ratio Asst Interst ratio Earnd 1000 1000 1000 Comn Ret'd RE Stock Earn' Clas 1000 1000 ➖➖➖➖➖

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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