Non-Interest-Bearing Notes Payable

On October 1, 2014, Ratkowski Inc. borrowed $18,000 from Second National Bank by issuing a 12-month note. The bank discounted the note at 9%.

Required:

1. Identify and analyze the effect of the issuance of the note.

Activity	- Select your answer -OperatingInvestingFinancingCorrect 1 of Item 1
Accounts	- Select your answer -Cash Increase, Discount on Notes Payable Increase, Notes Payable IncreaseCash Increase, Discount on Notes Payable Increase, Notes Payable DecreaseCash Decrease, Discount on Notes Payable Increase, Notes Payable IncreaseCash Decrease, Discount on Notes Payable Increase, Notes Payable DecreaseCorrect 2 of Item 1
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 1

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Identify and analyze the transaction by using the following steps: 1. Determine activity operating, investing or financing. 2. Determine accounts affected and the amount of increases/decreases. 3. Determine the financial statements affected balance sheet, income statement. The accounting equation must balance for each transaction.

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -CashDiscount on Notes payableInterest ExpenseLoss on Notes PayableNote ReceivableNo EntryCorrect 1 of Item 2

- Select your answer -Discount on Notes PayableInterest ExpenseLoss on Notes payableNotes ReceivablePremium on Notes PayableNo EntryCorrect 3 of Item 2

- Select your answer -Discount on Notes PayableInterest ExpenseLoss on Notes payableNotes ReceivablePremium on Notes PayableNo EntryCorrect 6 of Item 2

- Select your answer -CashDiscount on Notes payableInterest ExpenseLoss on Notes PayableNote ReceivableNo EntryCorrect 8 of Item 2

- Select your answer -Discount on Notes PayableInterest ExpenseLoss on Notes payableNotes PayablePremium on Notes PayableNo EntryCorrect 11 of Item 2

- Select your answer -CashInterest ExpenseLoss on Notes PayableNotes PayableNotes ReceivableNo EntryCorrect 13 of Item 2

- Select your answer -CashInterest ExpenseLoss on Notes PayableNotes PayableNotes ReceivableNo EntryCorrect 16 of Item 2

- Select your answer -Discount on Notes PayableInterest ExpenseLoss on Notes payableNotes PayablePremium on Notes PayableNo EntryCorrect 18 of Item 2

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2. Identify and analyze the effect of the accrual of interest on December 31, 2014.

Activity	- Select your answer -OperatingInvestingFinancingCorrect 1 of Item 3
Accounts	- Select your answer -Discount on Notes Payable Increase, Interest Expense IncreaseDiscount on Notes Payable Increase, Interest Expense DecreaseDiscount on Notes Payable Decrease, Interest Expense IncreaseDiscount on Notes Payable Decrease, Interest Expense DecreaseCorrect 2 of Item 3
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 3

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There are four types of adjusting entries: 1. Deferred expense the cash is paid before the expense is incurred. The adjusting entry is made to write off the asset and record the expense. 2. Deferred revenue the cash is received before the revenue is earned. An adjusting entry is needed to reduce the liability and record the revenue. 3. Accrued liability the expense is incurred before the cash is paid. An adjusting entry is needed to record the expense and the liability. 4. Accrued asset the revenue is earned before the cash is received. An adjusting entry is needed to record the asset and the revenue. Remember that adjusting entries never affect cash and at least one balance sheet and one income statement account are involved in each adjusting entry. Identify and analyze the transaction by using the following steps: 1. Determine activity operating, investing or financing. 2. Determine accounts affected and the amount of increases/decreases. 3. Determine the financial statements affected balance sheet, income statement. The accounting equation must balance for each transaction.

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. Use months in calculation.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -CashDiscount on Notes PayableInterest ExpenseInterest RevenueLoss on Notes PayableNo EntryCorrect 1 of Item 4

- Select your answer -CashDiscount on Notes PayableInterest ExpenseLoss on Notes PayablePrepaid InterestNo EntryCorrect 3 of Item 4

- Select your answer -CashDiscount on Notes PayableInterest ExpenseLoss on Notes PayablePrepaid InterestNo EntryCorrect 6 of Item 4

- Select your answer -CashDiscount on Notes PayableInterest ExpenseInterest RevenueLoss on Notes PayableNo EntryCorrect 8 of Item 4

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3. Identify and analyze the effect of the payment of the note on October 1, 2015.

Activity	- Select your answer -OperatingInvestingFinancingCorrect 1 of Item 5
Accounts	- Select your answer -Cash Increase, Discount on Notes Payable Decrease, Notes Payable Decrease, Interest Expense IncreaseCash Increase, Discount on Notes Payable Decrease, Notes Payable Decrease, Interest Expense DecreaseCash Decrease, Discount on Notes Payable Decrease, Notes Payable Decrease, Interest Expense IncreaseCash Decrease, Discount on Notes Payable Decrease, Notes Payable Decrease, Interest Expense DecreaseCorrect 2 of Item 5
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5

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Identify and analyze the transaction by using the following steps: 1. Determine activity operating, investing or financing. 2. Determine accounts affected and the amount of increases/decreases. 3. Determine the financial statements affected balance sheet, income statement. The accounting equation must balance for each transaction.

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -CashDiscount on Notes PayableLoss on Notes PayableNotes PayableNotes ReceivableNo EntryCorrect 1 of Item 6

- Select your answer -CashDiscount on Notes PayableInterest ExpenseLoss on Notes PayableNotes ReceivableNo EntryCorrect 3 of Item 6

- Select your answer -CapitalDiscount on Notes PayableLoss on Notes PayableNotes PayableNotes ReceivableNo EntryCorrect 6 of Item 6

- Select your answer -CashDiscount on Notes PayableInterest ExpenseLoss on Notes PayableNotes ReceivableNo EntryCorrect 8 of Item 6

- Select your answer -CapitalInterest ExpenseInterest RevenueLoss on Notes PayableNotes ExpenseNo EntryCorrect 11 of Item 6

- Select your answer -CashInterest ExpenseLoss on Notes PayableNotes PayableNotes ReceivableNo EntryCorrect 13 of Item 6

- Select your answer -CashInterest ExpenseLoss on Notes PayableNotes PayableNotes ReceivableNo EntryCorrect 16 of Item 6

- Select your answer -CashDiscount on Notes PayableLoss on Notes PayableNotes PayableNotes ReceivableNo EntryCorrect 18 of Item 6

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Hint(s)

4. What effective rate of interest did Ratkowski pay? Round effective interest rate calculations to four decimal places, but enter as a percentage with two decimals; for example, .17629 rounds to .1763 and would be entered as 17.63, indicating 17.63%. %