A Company Lends a Major Client $90,000 for One Year

question 41

Multiple Choice

A company lends a major client $90,000 for one year at a 7% annual interest rate. Interest payments are t o be made twice a year but the company wants to recognize interest earned on a monthly basis. On a month in which the company does not receive any interest payments, interest is recorded with:

• A) a debit to Cash of $525 and a credit to Interest Revenue of $525.
• B) a debit to Notes Receivable of $525 and a credit to Cash of $525.
• C) a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
• D) no adjusting entry, since no transaction has occurred.

Assess the liquidity and profitability of a firm using ratio analysis.

Understand how changes in operating activities, investing activities, and financing activities affect cash flow.

Calculate net working capital and its significance.

Analyze the cash flow statement and understand the impact of various transactions on cash flow.

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Definitions:

Expansionary Influence

Activities or policies designed to stimulate economic growth or expansion, often through increased spending or tax cuts.

Discretionary Influence

The ability to make decisions or take actions based on personal judgment rather than fixed rules.

Public Borrowing

The process by which a government finances its expenditure by raising loans through the issuance of securities or borrowing from financial institutions.

Federal Deficit

The fiscal year difference when the U.S. Government's expenditures exceed its revenues, necessitating borrowing to cover the gap.