The Elmaida Corporation’s controller prepares adjusting entries only at the end of the reporting year. The following adjusting entries were prepared on December 31, 2021: Debit Credit Interest expense Interest payable 7,200 7,200 Rent expense Prepaid rent 35,000 35,000 Interest receivable Interest revenue 500 500 Addition information: The company borrowed R.O.120,000 on March, 2021. Principle and interest are due on March 31, 2022. This note is the company’s only interest-bearing debt. Rent for the year on the company’s office space is R.O.60,000. The rent is paid in advance. On October 31, 2021, Elmaida lent money to a customer. The customer signed a note with principle and interest at 6% due in one year. Required: Determine the following: Elmaida's Notes Payable's interest rate is higher than the average market rate of 6%. Do you agree? Explain. Why would you disagree that the 2021 rent payment was made at the beginning of the year's first quarter? Should Elmaida adjust its accounting entry on Interest Receivable if the amount borrowed by its customer was R.O. 150,000? Which accounting principles are applied by the company when recording the above entries and how that affect the reporting of the company performance?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
The Elmaida Corporation’s controller prepares
|
|
Debit |
Credit |
|
Interest expense Interest payable |
7,200 |
7,200 |
|
Rent expense Prepaid rent |
35,000 |
35,000 |
|
Interest receivable Interest revenue |
500 |
500 |
Addition information:
- The company borrowed R.O.120,000 on March, 2021. Principle and interest are due on March 31, 2022. This note is the company’s only interest-bearing debt.
- Rent for the year on the company’s office space is R.O.60,000. The rent is paid in advance.
- On October 31, 2021, Elmaida lent money to a customer. The customer signed a note with principle and interest at 6% due in one year.
Required: Determine the following:
- Elmaida's Notes Payable's interest rate is higher than the average market rate of 6%. Do you agree? Explain.
- Why would you disagree that the 2021 rent payment was made at the beginning of the year's first quarter?
- Should Elmaida adjust its accounting entry on Interest Receivable if the amount borrowed by its customer was R.O. 150,000?
- Which accounting principles are applied by the company when recording the above entries and how that affect the reporting of the company performance?
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