Question
Notes Receivable On September 1, 2017, Garza Inc. accepted a six-month, 7%, $37,200 interest-bearing note from Ho Company in payment of an account receivable. Garza's
Notes Receivable
On September 1, 2017, Garza Inc. accepted a six-month, 7%, $37,200 interest-bearing note from Ho Company in payment of an account receivable. Garza's year-end is December 31. Ho paid the note and interest on the due date. Assume 360 days in the year.
Required:
1. Who is the maker and who is the payee of the note? The maker is
Garza Inc.Ho CompanyHo Company
and the payee is
Garza Inc.Ho CompanyGarza Inc.
.
2. What is the maturity date of the note?
December 31, 2015March 1, 2018March 31, 2018April 1, 2018April 2, 2018March 1, 2018
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1) Maker: The party that agrees to repay money is the maker of the note. The company that makes or gives a promissory note to another company has a liability, a note payable. Over the life of the note, the maker incurs interest expense on its note payable. Payee: The party that receives money in the future is the payee. A company that holds a promissory note received from another company has an asset, called a note receivable. Over the life of the note, the payee earns interest revenue on its note receivable. 2) Maturity date is the date the promissory note is due.
3. Identify and analyze the effect of the transactions or adjustments to be recorded on each of the following dates:
a. September 1, 2017
| Activity | OperatingInvestingFinancingOperating |
| Accounts | Notes Receivable Increase, Accounts Receivable IncreaseNotes Receivable Increase, Accounts Receivable DecreaseNotes Receivable Decrease, Accounts Receivable IncreaseNotes Receivable Decrease, Accounts Receivable DecreaseNotes Receivable Increase, Accounts Receivable Decrease |
| Statement(s) | Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementBalance Sheet only |
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Determine activity. 1) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or raise money from selling of their stock. 2) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 3) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts: Revenues - Expenses = Net Income. (Equations must stay in balance) Sept 1, 2017: Record acceptance of Notes Receivable for amount transferred from Accounts Receivable.
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.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| CashInterest ReceivableInterest RevenueNotes ReceivableSales RevenueNo EntryNotes Receivable | fill in the blank 4cd4fdfc6f8efc3_2 | Accounts ReceivableCashInterest ReceivableInterest RevenueSales RevenueNo EntryNo Entry | fill in the blank 4cd4fdfc6f8efc3_4 | fill in the blank 4cd4fdfc6f8efc3_5 | Accounts ReceivableCashInterest ReceivableInterest RevenueSales RevenueNo EntryNo Entry | fill in the blank 4cd4fdfc6f8efc3_7 | CashInterest ReceivableInterest RevenueNotes ReceivableSales RevenueNo EntryNo Entry | fill in the blank 4cd4fdfc6f8efc3_9 | fill in the blank 4cd4fdfc6f8efc3_10 | |||||
| Accounts ReceivableCashInterest ReceivableInterest RevenueSales RevenueNo EntryAccounts Receivable | fill in the blank 4cd4fdfc6f8efc3_12 | CashInterest ReceivableInterest RevenueNotes ReceivableSales RevenueNo EntryNo Entry | fill in the blank 4cd4fdfc6f8efc3_14 | fill in the blank 4cd4fdfc6f8efc3_15 | Accounts ReceivableCashInterest ReceivableInterest RevenueSales RevenueNo EntryNo Entry | fill in the blank 4cd4fdfc6f8efc3_17 | CashInterest ReceivableInterest RevenueNotes ReceivableSales RevenueNo EntryNo Entry | fill in the blank 4cd4fdfc6f8efc3_19 | fill in the blank 4cd4fdfc6f8efc3_20 | |||||
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Partially correct
b. December 31, 2017
| Activity | OperatingInvestingFinancingOperating |
| Accounts | Interest Receivable Increase, Interest Revenue IncreaseInterest Receivable Increase, Interest Revenue DecreaseInterest Receivable Decrease, Interest Revenue IncreaseInterest Receivable Decrease, Interest Revenue DecreaseInterest Receivable Increase, Interest Revenue Increase |
| Statement(s) | Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementBalance Sheet and Income Statement |
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Dec 31, 2017: 1) Calculate interest revenue for four months = principle x rate x time. 2) Companies must record interest when it is earned. The interest earned will be received on the maturity date. 3) This is an accrued asset, revenue earned before cash is received. Revenue earned before receipt of cash.
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. Do not round intermediate calculations. If required, round your final answer to the nearest dollar.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| Accounts ReceivableCashInterest PayableInterest ReceivableNotes ReceivableNo EntryInterest Receivable | fill in the blank 1d2b25fbd079f90_2 | Accounts ReceivableCashInterest ReceivableInterest RevenueNotes PayableNo EntryNo Entry | fill in the blank 1d2b25fbd079f90_4 | fill in the blank 1d2b25fbd079f90_5 | Accounts ReceivableCashInterest ReceivableInterest RevenueNotes PayableNo EntryInterest Revenue | fill in the blank 1d2b25fbd079f90_7 | Accounts ReceivableCashInterest PayableInterest ReceivableNotes ReceivableNo EntryNo Entry | fill in the blank 1d2b25fbd079f90_9 | fill in the blank 1d2b25fbd079f90_10 | |||||
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Partially correct
c. March 1, 2018
| Activity | OperatingInvestingFinancingOperating |
| Accounts | Cash Increase, Notes Receivable Decrease, Interest Receivable Decrease, Interest Revenue IncreaseCash Increase, Notes Receivable Decrease, Interest Receivable Decrease, Interest Revenue DecreaseCash Decrease, Notes Receivable Decrease, Interest Receivable Decrease, Interest Revenue IncreaseCash Decrease, Notes Receivable Decrease, Interest Receivable Decrease, Interest Revenue DecreaseCash Increase, Notes Receivable Decrease, Interest Receivable Decrease, Interest Revenue Increase |
| Statement(s) | Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementBalance Sheet and Income Statement |
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March 1, 2018: Calculate interest revenue for two months = principle x rate x time. Record Interest Revenue earned.
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. Do not round intermediate calculations. If required, round your final answer to the nearest dollar.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| Accounts ReceivableCashInterest RevenueNotes PayableSales RevenueNo EntryCash | fill in the blank 56c761febfb4041_2 | Accounts ReceivableCashInterest ReceivableNotes PayableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_4 | fill in the blank 56c761febfb4041_5 | Accounts ReceivableCashInterest ReceivableInterest RevenueNotes PayableNo EntryInterest Revenue | fill in the blank 56c761febfb4041_7 | Accounts ReceivableCashNotes PayableNotes ReceivableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_9 | fill in the blank 56c761febfb4041_10 | |||||
| Accounts ReceivableInterest ReceivableInterest RevenueNotes PayableSales RevenueNo EntryInterest Receivable | fill in the blank 56c761febfb4041_12 | Accounts ReceivableCashNotes PayableNotes ReceivableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_14 | fill in the blank 56c761febfb4041_15 | Accounts ReceivableCashInterest ReceivableNotes PayableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_17 | Accounts ReceivableCashInterest ReceivableNotes PayableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_19 | fill in the blank 56c761febfb4041_20 | |||||
| Accounts ReceivableInterest RevenueNotes PayableNotes ReceivableSales RevenueNo EntryNotes Receivable | fill in the blank 56c761febfb4041_22 | Accounts ReceivableCashInterest ReceivableNotes PayableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_24 | fill in the blank 56c761febfb4041_25 | Accounts ReceivableCashInterest ReceivableNotes PayableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_27 | Accounts ReceivableCashNotes PayableNotes ReceivableSales RevenueNo EntryNo Entry | fill in the blank 56c761febfb4041_29 | fill in the blank 56c761febfb4041_30 | |||||
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Managerial Accounting
Authors: Ray H. Garrison, Alan Webb, Theresa Libby
12th Canadian Edition
1260193276, 978-1260193275
