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
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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.
NAME
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.
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
Transcribed Image Text: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. NAME 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. 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
b) receive on note
c) accrue March
interest
d) pay note
pay interest
Transcribed Image Text:b) receive on note c) accrue March interest d) pay note pay interest
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