Determining Financial Statement Effects of Adjustments for Interest on Two Notes Note 1: On April 1. 2003, Seaquist Corporation received a $10,000, 10 percent note from a customer in settlement of a $10,000 open account receivable. According to the terms, the principal of the note and interest are payable at the end of 12 months. The annual accounting period for Seaquist ends on December 3 1 . 2003.

Note 2: On August 1 , 2003, to meet a cash shortage, Seaquist Corporation obtained a $20,000, 12 percent loan from a local bank. The principal of the note and interest expense are payable at the end of 12 months.

Required:

For the relevant transaction dates of each note, indicate the amounts and direction of effects on the elements of the balance sheet and income statement. Using the following format, indicate + for increase.

- for decrease, and NE for no effect. {Reminder: Assets = Liabilities + Stockholders' Equity;

Revenues - Expenses = Net Income; and Net Income accounts are closed to Retained Earnings, a part of Stockholders' Equity.)

Transcribed Image Text:

Date April 1, 2003 December 31, 2003 March 31, 2004 August 1, 2003 December 31, 2003 July 31, 2004 Transaction Receipt of Note 1 Adjustment for Note I Collection of Note 1 Borrowing on Note 2 Adjustment for Note 2 Payment on Note 2 BALANCE SHEET INCOME STATEMENT Stock- Liabil holders' Assets ities Equity Net Revenues Expenses Income