Intro to Financial Management- Accounting Exam 2

A company borrowed $10,000 by signing a 180-day promissory note at 9%. The maturity value of the note is: (Use 360 days a year.)

$10,000 + ($10,000 × 0.09 × 180/360) = $10,450

A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $60,000; the land at $46,600, and the parking lot at $18,400. Land should be recorded in the accounting records with an allocated cost of:

$100,000 × $46,600/($60,000 + $46,600 + $18,400) = $37,280

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest that Jasper will collect on the loan is: (Use 360 days a year.)

$25,000 × .07 × 90/360 = $437.50

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What is the journal entry to record the first annual payment?

$250,000 principle × 8% = $20,000 interest$37,258 payment - $20,000 interest = $17,258 principal payment =Debit Interest Expense $20,000; debit Notes Payable $17,258; credit Cash $37,258.

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

$250,000 principle × 8% = $20,000 interest$37,258 payment − 20,000 interest = $17,258 principal payment = 17,258

A company uses the percent of receivables method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts Receivable- 375,000 Debit Allowance for uncollectible accounts- 500 Credit Net Sales- 800,000 Credit All sales are made on credit. Based on past experience, the company estimates that 6% of receivables are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

$375,000 × 0.06 = $22,500 - $500 credit balance in Allowance account = $22,000

A company uses the percent of receivables method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts Receivable- 380,000 Debit Allowance for uncollectible accounts 550 Credit Net Sales- 850,000 Credit All sales are made on credit. Based on past experience, the company estimates that 6% of receivables are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

$380,000 × 0.06 = $22,800 - $550 credit balance in Allowance account = $22,250

A machine with a cost of $130,000, accumulated depreciation of $85,000, and current year depreciation expense of $17,000 is sold for $40,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

$40,000.

On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $100,000; Allowance for Doubtful Accounts, credit balance of $600; credit sales of $420,000. What amount should be debited to Bad Debts Expense, assuming 1% of credit sales are estimated to be uncollectible?

$420,000 × .01 = $4,200. The balance in the allowance account is ignored.

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

$50,000.

The interest accrued on $7,500 at 6% for 90 days is: (Use 360 days a year.)

$7,500 × 0.06 × 90/360 = $112.50

On July 9, Mifflin Company receives an $7,800, 90-day, 6% note from customer Payton Summers as payment on account. What entry should be made on the maturity date assuming the maker pays in full, and no adjusting entries have been made related to the note? (Use 360 days a year.)

$7,800 × 0.06 × 90/360 = $117 + $7,800 = $7,917 Debit Cash $7,917; credit Interest Revenue $117; credit Notes Receivable $7,800.

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts Receivable- 352,000 debit Allowance for uncollectible accounts- 630 debit Net Sales- 797,000 credit All sales are made on credit. Based on past experience, the company estimates 0.5% of net credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

$797,000 × 0.005 = $3,985 Debit Bad Debts Expense $3,985; credit Allowance for Doubtful Accounts $3,985.

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts Receivable- 363,000 Debit Allowance for uncollectible accounts- 580 debit Net Sales 808,000 Credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

$808,000 × 0.006 = $4,848

On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $98,600; Allowance for Doubtful Accounts, credit balance of $1,101. What amount should be debited to Bad Debts Expense, assuming 3% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?

$98,600 × 0.03 =$2,958credit −1,101credit =1,857credit

Charger Company's most recent balance sheet reports total assets of $29,133,000, total liabilities of $16,683,000 and total equity of $12,450,000. The debt to equity ratio for the period is (rounded to two decimals):

1.34

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

15,750+ 375= 16,125 Bad debts expense- 16,125 debit Allowance for doubtful accounts- 16,125 credit

On July 1, Shady Creek Resort borrowed $350,000 cash by signing a 10-year, 10% installment note requiring equal payments each June 30 of $56,961. What is the journal entry to record the first annual payment?

350,000 principle × 10% = $35,000 interest$56,961 payment - $35,000 interest = $21,961 principal payment =Debit Interest Expense $35,000; debit Notes Payable $21,961; credit Cash $56,961.

A company borrowed $41,600 cash from the bank and signed a 3-year note at 9% annual interest. The present value of an annuity factor for 3 years at 9% is 2.5313. The present value of a single sum factor for 3 years at 9% is .7722. The annual annuity payments equal:

41,600/2.5313= $16,434.24. =$16,434.24.

Salvage value is:

A. A factor relevant to amortizing an intangible asset with an indefinite life. B. Not a factor relevant to determining depletion. C. A factor relevant to determining depreciation under MACRS. D. A factor relevant to determining depreciation that cannot be revised during an asset's useful life. E. An estimate of the asset's value at the end of its benefit period. = E. An estimate of the asset's value at the end of its benefit period.

Depreciation:

A. Is the process of allocating the cost of a plant asset to expense. B. Is applied to land. C. Is an outflow of cash from the use of a plant asset. D. Measures physical deterioration of an asset. E. Measures the decline in market value of an asset. =A Is the process of allocating the cost of a plant asset to expense.

Frederick Company borrows $63,000 from First City Bank and pledges its receivables as security. Which of the following is true regarding this transaction:

A. No journal entry is required for this event. B. Frederick Company no longer has the risk of bad debts. C. Frederick Company's financial statements must disclose the pledging of receivables. D. First City Bank is the factor in this transaction. E. First City Bank takes ownership of the receivables at the time of the pledge. = C. Frederick Company's financial statements must disclose the pledging of receivables.

Intangible assets do not include:

A. Patents. B. Copyrights. C. Trademarks. D. Land held as an investment. E. Goodwill. = D. Land held as an investment.

When preparing a statement of cash flows using the indirect method, which of the following is correct?

A. The declaration of a cash dividend should be a use of cash in the financing activities section. B. A loss on the sale of land should be added to net income in the operating activities section. C. The purchase of land and a building by issuing a long-term note payable should be a source of cash in the financing activities section. D. Proceeds from the sale of equipment should be added to net income in the operating activities section. E. The issuance of a stock dividend should be a use of cash in the financing activities section. =B. A loss on the sale of land should be added to net income in the operating activities section.

One characteristic of plant assets is that they are:

A. Used in operations. B. Current assets. C. Natural resources. D. Long-term investments. E. Intangible. = A. Used in operations.

The statement of cash flows reports all but which of the following:

A.Cash flows from investing activities. B. The financial position of the company at the end of the accounting period. C. Cash flows from operating activities. D. Cash flows from financing activities. E. Significant noncash financing and investing activities. =B The financial position of the company at the end of the accounting period.

A company has net sales of $1,483,200 and average accounts receivable of $412,000. What is its accounts receivable turnover for the period?

Accounts Receivable Turnover = Net Sales/Average Accounts ReceivableAccounts Receivable Turnover = $1,483,200/$412,000 = 3.60

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the:

Aging of accounts receivable method.

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

Allowance for doubtful accounts- 2,000 debit Accounts receivable - A. Hopkins- 2,000 credit

A decrease in the inventory account during the year should be reported on the indirect method statement of cash flows as:

An increase in cash flows from operating activities

Axle Co.'s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman's turnover was 9.3 for this year and 9.3 for last year. These results imply that:

Axle has the better turnover for both years

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $26,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $485. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Bad debt expense 26,265 debit Allowance for doubtful accounts 26,265 credit = 26,750- 485= 26,265

Analysis reveals that a company had a net increase in cash of $20,000 for the current year. Net cash provided by operating activities was $18,000; net cash used in investing activities was $10,000 and net cash provided by financing activities was $12,000. If the year-end cash balance is $24,000, the beginning cash balance was:

Cash = $24,000 ending balance − $20,000 increase in cash = $4,000 beginning balance =$4,000.

The statement of cash flows reports:

Cash inflows and cash outflows for an accounting period.

Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

Credit card fee expense: $4,800 × 0.025 = $120Cash received: $4,800 − $120 = $4,680 Debit Cash $4,680; debit Credit Card Expense $120; credit Sales $4,800.

Obligations to be paid within one year or the company's operating cycle, whichever is longer, are:

Current liabilities.

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What is the appropriate journal entry to record the issuance of the note?

Debit Cash $250,000; credit Notes Payable $250,000.

If a company has advance ticket sales totaling $2,000,000 for the upcoming football season, the receipt of cash would be journalized as:

Debit Cash, credit Unearned Revenue.

A company purchased a mineral deposit for $800,000. It expects this property to produce 120,000 tons of minerals and to have a salvage value of $50,000. In the current year, the company mined and sold 9,000 tons of minerals. Its depletion expense for the current period equals:

Depletion Expense = [(Cost − Salvage Value)/Estimated Useful Life (in tons)] × Tons Mined and Sold Depletion Expense = [($800,000 − $50,000)/120,000] × 9,000 = $56,250

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

Depreciation Expense = $3,400 × (2 × 10%) = $680 (Year 1, depreciation) Depreciation Expense = ($3,400 − $680) × (2 × 10%) = $544 (Year 2, depreciation) =544.

Marlow Company purchased a point of sale system on January 1 for $7,200. This system has a useful life of 10 years and a salvage value of $1,300. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

Depreciation Expense = $7,200 × (2 × 10%) = $1,440 (Year 1, depreciation) Depreciation Expense = ($7,200 − $1,440) × (2 × 10%) = $1,152 (Year 2, depreciation) =$1,152.

Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 7 years with a $1,000 salvage value. The journal entry to record the first year's depreciation is:

Depreciation Expense = ($15,000 − $1,000)/7 = $2,000 =Debit Depreciation Expense $2,000, credit Accumulated Depreciation $2,000.

A company purchased a delivery van for $20,700 with a salvage value of $2,100 on September 1, Year 1. It has an estimated useful life of 6 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

Depreciation Expense = ($20,700 − $2,100)/6 × 4/12; Depreciation Expense = $1,033 =1,033

Lima Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Lima Enterprises should recognize depreciation expense in Year 2 in the amount of:

Depreciation Expense = ($22,000 − $2,000)/4 = $5,000

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $114,000. The machine's useful life is estimated to be 5 years, or 210,000 units of product, with a $6,000 salvage value. During its second year, the machine produces 33,600 units of product. Determine the machines' second year depreciation under the units-of-production method. (Do not round intermediate calculations.)

Depreciation Expense = [($114,000 - $6,000)/210,000] × 33,600 = $17,280

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Units ProducedDepreciation per unit = ($190,000 − $10,000)/75,000 units = $2.40 per unit Depreciation Expense = $2.40 × 19,000 = $45,600 =$45,600.

A company purchased a weaving machine for $315,850. The machine has a useful life of 8 years and a residual value of $17,500. It is estimated that the machine could produce 765,000 bolts of woven fabric over its useful life. In the first year, 112,500 bolts were produced. In the second year, production increased to 116,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

Depreciation per unit = ($315,850 − $17,500)/765,000 units = $.39 per unit Depreciation Expense = $.39 × 116,500 = $45,435 =$45,435.

An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $127,200. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's annual FICA taxes amount is:

FICA Taxes = $37,000 × (0.062 + 0.0145); FICA Taxes = $2,830.50

Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of 9,288. The FICA tax for social security is 6.2% of the first $127,200 of employee earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,541.17. Her net pay for the month is: (Round your intermediate calculations to two decimal places.)

FICA-SS Tax $9,288 × 0.062 = $575.86** FICA-Medicare Tax $9,288 × 0.0145 = $134.68 Net Pay = $9,288 − $1,541.17 − $575.86* − $134.68**; Net Pay = $7,036.29 = 7,036.29

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:

Financing activities.

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

Financing activities.

A total asset turnover ratio of 3.5 indicates that:

For every $1 in assets, the firm produced $3.50 in net sales during the period.

The accounting principle that requires important noncash financing and investing activities be reported on the statement of cash flows or in a footnote is the:

Full disclosure principle.

Addams Corporation paid cash dividends totaling $75,000 during its most recent fiscal year. How should this information be reported on Addams's statement of cash flows?

In financing activities as a use of funds.

On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a 90-day, 8%, $7,500 note. What is the journal entry needed to record the payment of the note by Jarrett Company on the maturity date?

Interest Expense = $7,500 × 0.08 × 90/360 = $150 (Debit to Interest Expense) Cash Proceeds = $7,500 + $150 = $7,650 (Credit to Cash) =Debit Notes Payable $7,500; debit Interest Expense $150; credit Cash $7,650.

The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:

Investing activities.

Which of the following is not true about the Allowance for Doubtful Accounts?

It is a liability account.

Use the following information about the current year's operations of a company to calculate cash provided by operations. Net income$200,000 Increase in Accounts Payable 5,000 Increase in Accounts Receivable 7,000 Decrease in Merchandise Inventory 10,000 Increase in Salaries Payable 6,000 Depreciation Expense 10,000 Loss on Sale of Equipment 6,000

Net income $200,000 + Increase in Accounts Payable $5,000 - Increase in Accounts Receivable $7,000 + Decrease in Merchandise Inventory $10,000 + Increase in Salaries Payable $6,000 + Depreciation Expense $10,000 + Loss on Sale of Equipment $6,000 = Cash Provided by Operations $230,000. =$230,000.

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

Net income (loss).

In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available: Net income for the year was$55,000 Accounts payable decreased by 21,000 Accounts receivable increased by 28,000 Inventories increased by 8,000 Cash dividends paid were 14,600 Depreciation expense was 23,000 Net cash provided by operating activities was:

Net income$55,000 Depreciation exp. 23,000 Increase in A/R (28,000) Increase in Inventories (8,000) Decrease in A/P (21,000) Net cash provided by operating activities= $21,000 (28,000+8,000+21,000-23,000-55,000)

Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Net income$85,900 Depreciation expense 12,600 Gain on sale of land 8,100 Increase in merchandise inventory 2,650 Increase in accounts payable 6,750

Net income$85,900 Depreciation expense 12,600 Gain on sale of land (8,100) Increase in merchandise inventory (2,650) Increase in accounts payable 6,750 Net cash provided by operating activities$94,500 (8,100+2,650-6750-12,600-85,900) =94,500

The appropriate section in the statement of cash flows for reporting the cash payment of wages is:

Operating activities.

If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):

Operating activity.

The straight-line depreciation method and the double-declining-balance depreciation method:

Produce the same total depreciation over an asset's useful life.

Stormer Company reports the following amounts on its statement of cash flow: Net cash provided by operating activities was $38,000; net cash used in investing activities was $14,000 and net cash used in financing activities was $18,000. If the beginning cash balance is $7,000, what is the ending cash balance?

Provided by operating activities$38,000 Used in investing activities$(14,000) Used in financing activities$(18,000) Net increase in cash$6,000 (38,000-14,000-18,000) Plus Beginning Cash$7,000 Ending Cash$13,000 (7,000+6,000) =$13,000.

In preparing a company's statement of cash flows for the most recent year, the following information is available: Loss on the sale of equipment$15,200 Purchase of equipment 157,000 Proceeds from the sale of equipment 138,000 Repayment of outstanding bonds 93,000 Purchase of treasury stock 68,000 Issuance of common stock 102,000 Purchase of land 127,000 Increase in accounts receivable during the year 49,000 Decrease in accounts payable during the year 81,000 Payment of cash dividends 41,000 Net cash flows from investing activities for the year were:

Purchase of equipment$(157,000) Purchase of land (127,000) Proceeds from sale of equipment 138,000 Net cash used in investing activities= $146,000 (157,000+127000-138,000) =$146,000 of net cash used.

Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $4,000 of cash sales that are subject to an 9% sales tax, what is the journal entry to record the cash sales?

Sales Taxes Payable = $4,000 × 0.09 = $360 (Credit to Sales Taxes Payable) Cash Received = $4,000 + $360 = $4,360 (Debit to Cash) =Debit Cash $4,360; credit Sales $4,000; credit Sales Taxes Payable $360.

Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record:

Selling price $42,000 − Book value ($87,000 − $40,000) = $5,000 loss. = A loss on sale of $5,000.

FICA taxes include:

Social Security and Medicare taxes

The expense recognition (matching) principle, as applied to bad debts, requires:

The use of the allowance method of accounting for bad debts.

A company had average total assets of $912,000. Its gross sales were $1,089,000 and its net sales were $985,000. The company's total asset turnover equals:

Total Asset Turnover = $985,000/$912,000 = 1.08

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned total wages of $12,700. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

Unemployment Taxes = $7,000 × (0.006 + 0.054); Unemployment Taxes = $420.00 =420.00

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned total wages of $9,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

Unemployment Taxes = $7,000 × (0.006 + 0.054); Unemployment Taxes = $420.00 =420.00

FUTA taxes are:

Unemployment taxes.

Employees earn vacation pay at the rate of one day per month. During the month of July, 25 employees qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount of vacation benefit expense to be recorded for the month of July?

Vacation Benefit Expense = 25 employees × $100/day = $2,500 =2,500

Employees earn vacation pay at the rate of one day per month. During the month of July, 32 employees qualify for one vacation day each. Their average daily wage is $107 per day. What is the amount of vacation benefit expense to be recorded for the month of July?

Vacation Benefit Expense = 32 employees × $107/day = $3,424.00

A company estimates that warranty expense will be 4% of sales. The company's sales for the current period are $185,000. The current period's entry to record the warranty expense is:

Warranty Expense = $185,000 × 0.04 = $7,400 =Debit Warranty Expense $7,400; credit Estimated Warranty Liability $7,400.

Colvin Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's depreciation expense in Year 2 will be:

YEAR ONE 100,000 x 40%= 40,000 (Depreciation expense) 40,000 x 3/12= 10,000 (End of Year Book Value) 100,000-10,000=90,000 YEAR TWO (Depreciation Expense) 90,000 x 40%= 36,000 (End of Year Book Value) 90,000- 36,000= 54,000

Colvin Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $140,000. The asset is expected to have a salvage value of $16,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:

YEAR ONE: 140,000 x 40% = 56,000 56,000 x 3/12= 14,000 140,000- 14,000= 126,000 YEAR TWO: 126,000x 40%= 50,400 126,000-50,400= 75,600 = 75,600

On April 12, Hong Company agrees to accept a 60-day, 8%, $7,800 note from Indigo Company to extend the due date on an overdue account. What is the journal entry that Indigo Company would make, when it records payment of the note on the maturity date? (Use 360 days a year.)

nterest Expense = $7,800 × 0.08 × 60/360 = $104 (Debit to Interest Expense) Cash Proceeds = $7,800 + $104 = $7,904 (Credit to Cash) =Debit Notes Payable $7,800; debit Interest Expense $104; credit Cash $7,904.