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The company invested $300,000 on September 30, 20XA at 4% for 4 months. Determine interest revenue for 20XB. Receivables Analysis

The company invested $300,000 on September 30, 20XA at 4% for 4 months. Determine interest revenue for 20XB. Receivables Analysis

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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From page 5-9 of the VLN, the last practice problem where the company invested money for 4 months, how much interest revenue did the company earn in year 20XB?
Then record customer W’s payment: Cash (A+) Accounts Receivable (A-) 300 300 PART C: NOTES RECEIVABLE Formal arrangement - Indicates amount (Face value or Principal) Due date - Interest rate - An asset to the lender (Note Receivable) Interest Calculation--revisited Px R x T where: P = Principal (FACE Value) is the amount borrowed R= Annual interest rate T = length of time the money was used this accounting period (fraction of year). Ехample: The Company extends credit to Customer P for six months to offset the A/R Customer P owes the Company. The terms of the note are $10,000 due in six months at 12% interest. The date of the note is February 1, 20XD. The due date is August 1, 20XD. Record the note 2/1/XD Note Receivable (A+) 10,000 Accounts Receivable (A-) 10,000 Acceptance of a six month note at 12% interest to satisfy customer P's account The amount of interest to accrue over the six months = $10,000 x 12% x 6/12 = $600 Record the receipt of payment for the note 8/1/XD Cash (A+) 10,600 Note Receivable (A-) 10,000 Interest revenue (R+àSE+) 600 Collection of note receivable plus interest (10,000 x.12 x 6/12) If the note's term was for 12 months instead of six, we would have to record an adjusting entry for interest at the end of the year (December 31) prior to the note's due date on January 31. 12/31/XD Interest Receivable (A+) 1,100 1,100 Accrual of interest on note (10,000 x .12 x 11/12) Interest Revenue (R+àSE+) Then when the note is paid in January the company would record: 1/31/XE Cash (A+) Im.200 Note Receivable (A-) 10,000 Interest Receivable (A-) 1,100 Interest Revenue (R+àSE+) 100 Collection of note (10,000 х .12 х 1/12)
Transcribed Image Text:Then record customer W’s payment: Cash (A+) Accounts Receivable (A-) 300 300 PART C: NOTES RECEIVABLE Formal arrangement - Indicates amount (Face value or Principal) Due date - Interest rate - An asset to the lender (Note Receivable) Interest Calculation--revisited Px R x T where: P = Principal (FACE Value) is the amount borrowed R= Annual interest rate T = length of time the money was used this accounting period (fraction of year). Ехample: The Company extends credit to Customer P for six months to offset the A/R Customer P owes the Company. The terms of the note are $10,000 due in six months at 12% interest. The date of the note is February 1, 20XD. The due date is August 1, 20XD. Record the note 2/1/XD Note Receivable (A+) 10,000 Accounts Receivable (A-) 10,000 Acceptance of a six month note at 12% interest to satisfy customer P's account The amount of interest to accrue over the six months = $10,000 x 12% x 6/12 = $600 Record the receipt of payment for the note 8/1/XD Cash (A+) 10,600 Note Receivable (A-) 10,000 Interest revenue (R+àSE+) 600 Collection of note receivable plus interest (10,000 x.12 x 6/12) If the note's term was for 12 months instead of six, we would have to record an adjusting entry for interest at the end of the year (December 31) prior to the note's due date on January 31. 12/31/XD Interest Receivable (A+) 1,100 1,100 Accrual of interest on note (10,000 x .12 x 11/12) Interest Revenue (R+àSE+) Then when the note is paid in January the company would record: 1/31/XE Cash (A+) Im.200 Note Receivable (A-) 10,000 Interest Receivable (A-) 1,100 Interest Revenue (R+àSE+) 100 Collection of note (10,000 х .12 х 1/12)
Then when the note is paid in January the company would record: 1/31/XE Cash (A+) 11,200 Note Receivable (A-) 10,000 Interest Receivable (A-) 1,100 Interest Revenue (R+àSE+) 100 Collection of note receivable, interest receivable and interest revenue (10,000 x .12 x 1/12) Interest Revenue earned in 20XE is $100 (10,000 x .12 x 1/12). Practice The company lent $5,000 on July 1, 20XA at 10% interest for 9 months. Determine interest revenue for 20XA. Determine interest revenue for 20XB The company lent $9,000 on December 1, 20XA at 7% for 18 months. Determine interest revenue for 20XA. Determine interest revenue for 20XB Determine interest revenue for 20XC The company invested $300,000 on September 30, 20XA at 4% for 4 months. Determine interest revenue for 20XB. Receivables Analysis Receivable Turnover Ratio The receivables turnover ratio is a measure of the effectiveness of a company's Credit Granting and Collection Activities. Net credit sales Receivables Turnover = Average net trade accounts receivable If you cannot determine net credit sales, use net sales as the numerator in the above equation. “Average" is calculated as follows: (last year's ending balance + this year's ending balance)/2 Average collection period= 365 days/Receivable turnover Average length of time it takes to collect A/R Chapter 5 Page 5-1
Transcribed Image Text:Then when the note is paid in January the company would record: 1/31/XE Cash (A+) 11,200 Note Receivable (A-) 10,000 Interest Receivable (A-) 1,100 Interest Revenue (R+àSE+) 100 Collection of note receivable, interest receivable and interest revenue (10,000 x .12 x 1/12) Interest Revenue earned in 20XE is $100 (10,000 x .12 x 1/12). Practice The company lent $5,000 on July 1, 20XA at 10% interest for 9 months. Determine interest revenue for 20XA. Determine interest revenue for 20XB The company lent $9,000 on December 1, 20XA at 7% for 18 months. Determine interest revenue for 20XA. Determine interest revenue for 20XB Determine interest revenue for 20XC The company invested $300,000 on September 30, 20XA at 4% for 4 months. Determine interest revenue for 20XB. Receivables Analysis Receivable Turnover Ratio The receivables turnover ratio is a measure of the effectiveness of a company's Credit Granting and Collection Activities. Net credit sales Receivables Turnover = Average net trade accounts receivable If you cannot determine net credit sales, use net sales as the numerator in the above equation. “Average" is calculated as follows: (last year's ending balance + this year's ending balance)/2 Average collection period= 365 days/Receivable turnover Average length of time it takes to collect A/R Chapter 5 Page 5-1
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