210 Hw6

Homework 6

Marco Chavarria

Embry-Riddle Aeronautical University

Professor Victor Gaines

Brief Exercise 7-1: Accounting for Bad Debts

Bad Debt Expense $10,000

Allowance of Doubtful Accounts $10,000

Record of estimated bad debts:

$500,000 X 2% = $10,000

Balance Sheet | Income Statement |

Assets = | Liabilities + Stockholders’ Equity | Revenue - Expense | = Net Income |

Allowance of doubtful account(10,000) | | (10,000) | | Bad debt Expense(10,000) | (10,000) |

The Allowance of Doubtful Accounts has increased. It is shown as a decrease in the equation above because it is a contra account and causes total assets to decrease.

Brief Exercise 7-3: Accounting for Notes Receivable

Notes receivable:

Balance Sheet | Income Statement |

Assets = | Liabilities + Stockholders’ Equity | Revenue - Expense | = Net Income |

Notes Receivable$50,000 | | 50,000 | Sales Revenue50,000 | | 50,000 |

The amount of interest earned in the fiscal year is $50,000 x 6% x 60/360 or $500. An adjustment is made at the end of the fiscal year to record interest earned during the year. The effect of the adjustment can be identified and analyzed as follows:

Balance Sheet | Income Statement |

Assets = | Liabilities + Stockholders’ Equity | Revenue - Expense | = Net Income |

Interest Receivable$500 | | 500 | Interest Revenue500 | | 500 |

Exercise 9-2: Current Liabilities

1.

a. Current liability

b. Current liability

c. Long term liability

d. Current liability

e. Current liability

f. Long term liability

g. Current liability

2.

h. Accounts payable

i. Notes payable

j. Notes payable

k. Wages payable

l. Interest payable

m. Long term debt

n. Taxes payable

3. Because it shows the financial position of the company and the due obligations in short and long terms.

Exercise 9-5: Current Liabilities and Ratios

1.

Kruse

Balance Sheet...