Accounts Payable and Notes Payable

Logan Company had the following transactions:

April 8	Issued a $4,800 , 75day, 8% note payable in payment of an account with Bennett Company.
May 15	Borrowed $36,000 from Lincoln Bank, signing a 60day note at 9% .
June 22	Paid Bennett Company the principal and interest due on the April 8 note payable.
July 6	Purchased $12,000 of merchandise from Bolton Company; signed a 90-day note with 10% interest.
July 14	Paid the May 15 note due Lincoln Bank.
October 2	Borrowed $24,000 from Lincoln Bank, signing a 120day note at 12% percent.
October 4	Defaulted on the note payable to Bolton Company.Bolton intends to pursue collection.

a. Determine the financial statement effect of the above transactions. Round interest calculations to the nearest dollar. b. Determine the financial statement effect of the interest to be accrued on December 31, Logan Company's yearend. Round answer to the nearest dollar. TIP: If a category is not affected by the transaction, enter 0 or leave the field blank. If the transaction affects two accounts in the same category, enter the positive amount in the first row. Use a 360-day year in interest calculations.

Current Ratio, Quick Ratio, and Times-Interest-Earned Ratio

The following data is from the current accounting records of Florence Company:

Cash	$120
Accounts receivable (net of allowance of $40 )	200
Inventory	150
Other current assets	80
Accounts payable	110
Other current liabilities	170

The president of the company is concerned that the company is in violation of a debt covenant that requires the company to maintain a minimum current ratio of 2.0. He believes the best way to rectify this is to reverse a bad debt writeoff in the amount of $10 that the company just recorded. He argues that the writeoff was done too early and that the collections department should be given more time to collect the outstanding receivables. The CFO argues that this will have no effect on the current ratio, so a better idea is to use $10 of cash to pay accounts payable early. Florence Company uses the allowance method to account for bad debts.

a. Calculate the current ratio under the following scenarios: Round answers to two decimal places.

Current ratio (with no action)	Answer
Current ratio (after reversal of bad debt)	Answer
Current ratio (after paydown of accounts payable)	Answer

Which action, if any, should Florence Company take to maintain a minimum 2.0 current ratio? AnswerNo action should be taken.The bad debt write-off should be reversed.Cash should be used to pay down accounts payableBoth the bad debt reversal and accounts payable paydown would raise the current ratio. b. Will either the quick ratio or the timesinterestearned ratios be affected by at least one of these ideas?

Quick ratio	AnswerWill be affectedWill not be affected
Times-interest-earned ratio	AnswerWill be affectedWill not be affected