Question 26 Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is

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Question 26

Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of interest that is due at maturity?

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Question 27

Explain the impact, if any, on depreciation when estimates that determine depreciation change.

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Question 28

Carter Pearson is a partner in Event Promoters. His beginning partnership capital balance for the current year is $55,000, and his ending partnership capital balance for the current year is $62,000. His share of this year's partnership income was $6,250. What is his partner return on equity?

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Explanation / Answer

A) Amount of interest at maturity = 26000 * 90 / 365 * 4% = 256.43

B) Depreciation depends on following estimates : Useful Life , salvage value

Normally the depreciation expense is spread out through the useful life of the asset. Suppose if we revise the useful life upwards, then depreciation would have to be covered in alarger time frame and hence depreciation per year would decrease

Now, suppose the salvage value estimate is revised downward, then there will be more cost that is to be depreciated over the same time frame and thus increasing depreciation per year

C ) Return = 6250 ; Average capital balance = ( 55000 + 62000) / 2 = 58500

Return on partner capital = 6250 / 58500 = 10.68%

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