Question
a. On January 1, 2020, Pato Corp. accepted an 8 percent three-year $700,000 note from Berlusconi Co. in exchange for a service it provided to
a. On January 1, 2020, Pato Corp. accepted an 8 percent three-year $700,000 note from Berlusconi Co. in exchange for a service it provided to Berlusconi. The effective yield (market rate) for such a note is 10 percent.
8 percent 10 percent
Present value of 1 (3 periods) 0.79383 0.75131
FutureValue of 1 (3 periods) 1.25971 1.33100
Present Value of an Ordinary Annuity of 1 (3 periods) 2.57710 2.48685
Future Value of an Ordinary Annuity of 1 (3 periods) 3.24640 3.31000
How much sales revenue should Pato record?
a. 651,962
b. 660,882
c. 665,181
d. 700,000
On January 1 2020, Pato Corp accepted an 8 percent three-year $700,000 note from Berlusconi Co. in exchange for a service it provided to Berlusconi. The effective yield (market rate) for such a note is 10 percent.
8 percent 10 percent
Present value of 1 (3 periods) 0.79383 0.75131
FutureValue of 1 (3 periods) 1.25971 1.33100
Present Value of an Ordinary Annuity of 1 (3 periods) 2.57710 2.48685
Future Value of an Ordinary Annuity of 1 (3 periods) 3.24640 3.31000
How much interest revenue should Pato record over the life of the note?
a. 34,819
b. 71,851
c.168,000
d. 202,815
b. Cruise Industries purchased $10,000 of merchandise on February 1, 2020 with credit terms of 2/10, n/60. It returned $2,500 worth of merchandise on February 4. Assume Cruise paid its invoice on February 9 How does Cruise record its payment on February 9 if it uses the perpetual inventory system and gross method for recording purchase discounts?
a. AP: 10,000
Cash 10,000
b. AP: 7,500
Cash: 7,350
Purchase discounts 150
c. AP: 7,350
Cash: 7,350
d. AP: 7,500
Cash: 7,350
Inventory: 150
Assume cruise paid its invoice on March 9. How does cruise record its payment on March 9 if it uses the periodic inventory system and net method for recording purchase discounts?
a. AP: 10,000
Cash 10,000
b. AP: 7,350
Discounts forfeited: 150
Cash: 7,500
c. AP: 7,500
Cash: 7,500
d. AP: 7,350
Inventory: 150
Cash: 7,500
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