Accounting -Arabian Realty has the following note receivable transactions

| January 30, 2017

Question
Chapter 5 part 2 – D2L Homework

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Question 5 (19 points)
9ed – E5-29A – GAAP and Notes Receivable
Arabian Realty has the following note receivable transactions. Write the journal entry required for each
transaction.
Use a 365-day year for interest computations, and round interest amounts to the nearest dollar. Arabian
Realty has an October 31 fiscal year-end.
a. Aug 1. Loaned $ 10,000 cash to Candace Smith on a one-year, 7% note
Date

Account Name

Debit Amount

Credit Amount

b. Oct 6. Performed service for Putt Pro, receiving a 90-day, 6% note for $ 15,000.
Hint: Note this transaction involves performing a service that results in a note receivable.
Date

Account Name

Debit Amount

Credit Amount

c. Oct 16. Received a $ 2,000, six month, 11% note on account from Vernon, Inc.
Hint: Note this transaction involves converting an account receivable to a note receivable.
Date

Account Name

Debit Amount

Credit Amount

d. Oct 31. Accrued interest revenue for the year.
Hint: For each note receivable, count how many days the note has been in effect at October 31, and
calculate the amount of interest revenue accrued at October 31. Add up the interest accrued on each note
to obtain the total interest revenue for the year (assuming these are the only notes receivable outstanding).
Date

Account Name

e. How much interest revenue did Arabian earn this year?

Debit Amount

Credit Amount

Chapter 5 part 2 – D2L Homework
Format the text in BOLD BLUE.

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Chapter 5 part 2 – D2L Homework

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Question 6 (15 points)
9ed – E5-31A – Analysis – Ratios
Algonquin, Inc., reported the following items at December 31, 2012, and 2011:
Balance Sheets (Summarized)
Year End 2012
Assets
Current assets:
Cash
Marketable securities
Accounts receivable, net
Inventory
Other current assets
Long-term assets
Total assets
Liabilities:
Current liabilities:
Accounts Payable
Other current liabilities
Long-term liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity

Income Statement (partial):
Sales revenue

$

6,000
22,000
56,000
193,000
3,000
0
————-$ 280,000
=========

Year End 2011

$

12,000
11,000
70,000
189,000
3,000
0
————-$ 285,000
=========

$

15,000
$ 16,500
107,000
109,000
15,000
16,000
143,000
143,500
————————–$ 280,000
$ 285,000
=========== ===========
2012
$ 728,000

1a. Compute Algonquin’s quick (acid-test) ratio. Is this ratio strong or weak?

1b. Compute days’ sales in receivables for 2012. Is this ratio strong or weak? Algonquin sells
on terms of net 30 days.

2. Recommend two ways for Algonquin to speed up its cash flow from receivables.

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