Q1. Define a note receivable and give an 30 examples how interest is calculated on a short-term note...

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Q1. Define a note receivable and give an 30 examples how interest is calculated on a short-term note receivable.

Q2. How are the direct write-off method and the allowance method applied in accounting for uncollectible accounts receivables? Explain with 30 examples

Q3. Explain what is meant by depreciation Describe the methods of depreciation and give a numerical 30 examples for each method

Q4. Explain how to calculate times interest earned and explain with an 30 examples how it is used to analyze a company

David · Accepted Answer

Introduction 
The main problem in the used goods market is the asymmetry of information between buyers and 
sellers. The asymmetry lies in the fact that the buyers and sellers in the market have different sets of 
information about the product being sold in the market.  This asymmetry of information leads to 
inefficiency and hence the market failure.  
In the used goods market, we have two quality of goods, lemons which are of bad quality and peaches 
which are of good quality. This information about the quality of the product is with the sellers and 
buyers use some market statistic to judge the quality of their potential purchases. This provides an 
incentive to the sellers to market poor quality products.  
Asymmetry of information with an illustration 
Suppose buyers in the used good market value good products (peaches) at $1000 (and slightly to sellers) 
and a bad quality product (lemon) is valued at $ 500 by the buyers (and again, slightly less to the sellers). 
If the buyers in the market can distinguish the good quality products from the bad quality before buying 
it, the market would flourish and there would not be any inefficiency in the market. But since that is not 
the case and hence there is asymmetry of information between the buyer and the sellers about the 
information regarding the quality of the car, the market leads to inefficiency. Now to account for the risk 
of the product being a lemon, the buyers will cut their willingness to pay for the product. Suppose they 
assume there are 50% chances of a good being a peach and 50% chances of a good being a lemon, they 
would be willing to pay 0.5*1000 +0.5*500 =$750. But the sellers who know that their product is a 
peach and hence value it just slightly less than $1000 would not be willing to sell their products for $750 
and hence will be driven out of the market.

Q1. Define a note receivable and give an 30 examples how interest is calculated on a short-term note receivable. Q2. How are the direct write-off method and the allowance method applied in accounting...

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