Question

The following selected transactions are from Carter Company.

Year 1

Dec. 16 Accepted a $19,200, 60-day, 10% note in granting Robert King a time extension on his past-due account receivable.
31 Made an adjusting entry to record the accrued interest on the King note.

Year 2

Feb. 14 Received King’s payment of principal and interest on the note dated December 16.
Mar. 2 Accepted a $10,000, 10%, 90-day note in granting a time extension on the past-due account receivable from Nguyen Co.
17 Accepted a $13,800, 30-day, 10% note in granting Edward Lee a time extension on her past-due account receivable.
Apr. 16 Lee dishonored her note.
May 31 Nguyen Co. dishonored its note.
Aug. 7 Accepted a $16,000, 90-day, 12% note in granting a time extension on the past-due account receivable of Walker Co.
Sep. 3 Accepted a $9,000, 60-day, 10% note in granting Rita Griffin a time extension on his past-due account receivable.
Nov. 2 Received payment of principal plus interest from Griffin for the September 3 note.
Nov. 5 Received payment of principal plus interest from Walker for the August 7 note.
Dec. 1 Wrote off the Lee account against the Allowance for Doubtful Accounts.
Feb. 14 Received King's payment of principal and interest on the $19,200, 60-day, 10% note dated December 16. The Carter Company does not prepare reversing entries. Verify the amount of interest using the "CALCULATION OF INTEREST" tab.

Answer 1

The Carter Company's transactions revolve around notes receivable and interest calculations. For a given note, interest is determined using the principal, rate, and time, while future value takes into account the time value of money on future payments.

Step-by-step explanation:

The transactions listed from Carter Company involve the acceptance of notes receivable in exchange for extending credit terms for past-due accounts receivable, recording accrued interest, and recognizing payments or defaults on the notes received. To verify the amount of interest on a note, you would use the formula: Interest = Principal × Interest Rate × Time. In the context of a $19,200 note at 10% annually for 60 days, the calculation would be: Interest = $19,200 × 10% × (60/365), assuming a non-leap year.

For the example transactions involving late payment charges by a credit card company, these charges would be recognized as revenue by the company when they are incurred by the cardholder.

The concept of future value is illustrated by the series of payments from a firm that will be received in the future, adjusted for interest. To calculate the future value for the given table, the formula is: Future Value = Payment × (1 + Interest Rate)number of years t.

Answer 2

The student is asked to calculate the interest on a 60-day, 10% note with a principal of $19,200. Using the simple interest formula, the calculated interest is $315.07, which Robert King pays in addition to the principal when the note matures.

Step-by-step explanation:

The question involves calculating the interest on a note payable accepted by Carter Company. To determine the amount of interest received by Carter Company when Robert King repaid the principal and interest on a $19,200, 60-day, 10% note, we use the formula for simple interest: Interest = Principal × Rate × Time. For this note:

• Principal = $19,200
• Rate = 10% per annum (0.10 when expressed as a decimal)
• Time = 60 days (which is 60/365 years assuming a non-leap year)

The interest calculation is as follows:

Interest = $19,200 × 0.10 × (60/365)
= ($19,200 × 0.10 × 60) / 365
=$1,920 × 60 / 365
=$315.07 (rounded to two decimal places)

Carter Company would record this interest amount on December 31st as accrued interest, and Robert King would pay this amount in addition to the principal of the note on February 14.

For transactions involving other notes, similar calculations can be done using the respective principal amounts, rates, and time periods.