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Various Finance Problems

Exercise 5.8 Cash discounts- ROI

a. Calculate the approximate annual rate return in investment of the following cash discount:
1. 1/15, n30.
2. 2/10, n60.
3. 1/10, n90.
b. Which of these terms, if any, is not likely to be a significant incentive to the customer to pay promptly? Explain your answer.

Exercise 5.10
Notes receivable- interest accrual and collection Moiton Co.'s assets include notes receivable from customers. During fiscal 2010, the amount of notes receivable averaged $46,250, and the interest rate of the notes averaged 6.4%.

Required:
a. Calculate the amount of interest income earned by Moiton Co. during fiscal 2010 and show in the horizontal model or write a journal entry that accrues the interest income from the notes.
b. If the balance in the interest Receivable account increased by $1,200 from the beginning to the end of the fiscal year, how much interest receivable was collected during the fiscal year? Use the horizontal model, a T - account, or write the journal entry to show the collection of this amount.

Exercise 5.14
Prepaid expenses-rent
On November 1, 2010 Wenger Co. paid its landlord $25,200 in cash as an advance rent on its store location. The six- month lease period ends on April 30, 2011, at which time the contract my be renewed.

Required:
a. Use the horizontal model or write the journal entry to record the six-month advance rent payment on November 1, 2010.
b. Use the horizontal model or write the adjusting entry that will be made at the end of every month to show the amount of rent "used" during the month.
c. calculate the amount of the prepaid rent that should be reported on the December 31, 2010, balance sheet with respect to this lease.
d.If the advance payment made in November 1, 2010, had covered an 18-month lease period at the same amount of rent per month, how should Wenger Co. report the prepaid amount on its December 31, 2010, balance sheet.

Solution Summary

Exercise 5.8 Cash discounts- ROI

a. Calculate the approximate annual rate return in investment of the following cash discount:
1. 1/15, n30.
2. 2/10, n60.
3. 1/10, n90.
b. Which of these terms, if any, is not likely to be a significant incentive to the customer to pay promptly? Explain your answer.

Exercise 5.10
Notes receivable- interest accrual and collection Moiton Co.'s assets include notes receivable from customers. During fiscal 2010, the amount of notes receivable averaged $46,250, and the interest rate of the notes averaged 6.4%.

Required:
a. Calculate the amount of interest income earned by Moiton Co. during fiscal 2010 and show in the horizontal model or write a journal entry that accrues the interest income from the notes.
b. If the balance in the interest Receivable account increased by $1,200 from the beginning to the end of the fiscal year, how much interest receivable was collected during the fiscal year? Use the horizontal model, a T - account, or write the journal entry to show the collection of this amount.

Exercise 5.14
Prepaid expenses-rent
On November 1, 2010 Wenger Co. paid its landlord $25,200 in cash as an advance rent on its store location. The six- month lease period ends on April 30, 2011, at which time the contract my be renewed.

Required:
a. Use the horizontal model or write the journal entry to record the six-month advance rent payment on November 1, 2010.
b. Use the horizontal model or write the adjusting entry that will be made at the end of every month to show the amount of rent "used" during the month.
c. calculate the amount of the prepaid rent that should be reported on the December 31, 2010, balance sheet with respect to this lease.
d.If the advance payment made in November 1, 2010, had covered an 18-month lease period at the same amount of rent per month, how should Wenger Co. report the prepaid amount on its December 31, 2010, balance sheet.

$2.19