Deck 16: Notes Payable and Notes Receivable

Question 1

Since notes receivable are negotiable,internal control procedures must be devised to protect them against fraud and theft.

Answer 1

True

Question 2

The amount of cash received at maturity for a $5,000,90 day,6 percent note receivable is $75.

Answer 2

False

Question 3

If the amount of a note is not collected at maturity,the accountant should debit Uncollectible Accounts Expense and credit Notes Receivable.

Answer 3

False

Question 4

An ordinary check is one form of draft.

Question 5

A journal entry is recorded at the time a sight draft is issued.

Question 6

Interest Expense usually appears on the income statement as a nonoperating expense.

Question 7

If the proceeds of a discounted note are less than the face amount,the difference is debited to Interest Expense.

Question 8

Upon payment of the amount due on a $4,000 face value,60-day,6 percent note,the accountant will record an entry that includes a debit to Notes Payable for $4,000.

Question 9

The interest on a $5,000 face value,3-month note bearing interest at 9 percent a year would be $1,350.

Question 10

Notes Receivable Discounted is usually shown in the Current Liabilities section of the balance sheet.

Question 11

The face value of a noninterest-bearing note is its maturity value.

Question 12

The entry to record the collection of the amount due on the maturity date of a note includes a debit to Notes Receivable.

Question 13

Interest Income is classified as a current asset.

Question 14

The Interest Expense account usually has a credit balance.

Question 15

Annual Percentage Rate combines interest rates and fees at lending institutions enabling a borrower to compare fees.

Question 16

A 2-month note dated January 1,2013,will mature on the same date as a 60-day note dated January 1,2013.

Question 17

A dishonored note is converted to Accounts Receivable at its face value.

Question 18

The Notes Receivable account usually has a credit balance.

Question 19

Even if an interest-bearing note receivable is dishonored,interest income due on the note should be recorded.

Question 20

If a note payable overlaps financial reporting periods (years),Interest Expense is recorded only in the year the note is paid.

Question 21

How much interest will accrue on a $20,000 face value,60-day note that bears interest at 9 percent a year?

A) $300
B) $450
C) $900
D) $1,800

Question 22

The amount of interest that will accumulate on an $8,000 face value,30-day note bearing interest at 12 percent is ___________________.

Question 23

Sight drafts may be used to collect past-due accounts receivables or to obtain cash on delivery when shipments are made to new customers or customers with poor credit.

Question 24

Which of the following statements is correct?

A) To be considered a negotiable instrument,a promissory note must specify an interest rate.
B) The amount shown on a note is called the face value.
C) A company that issued a 6-month note payable would report its face value on the balance sheet as a long-term liability.
D) A note payable must be payable at a specific time in the future.

Question 25

Notes Receivable Discounted represents a(n)____________________ liability.

Question 26

When a note receivable is discounted,the net proceeds are computed by subtracting the discount charges from the ____________________ value of the note.

Question 27

When a note payable is ___________________,the lender deducts interest on the loan in advance and the borrower receives only the difference between the face amount of the note and the interest on it to maturity.

Question 28

A(n)____________________ is a form of commercial time draft that arises out of the sale of goods and has this fact noted on its face.

Question 29

Interest Expense is usually classified as a(n)____________________ expense on the income statement.

Question 30

A ____________________ draft is a commercial draft that is payable during a specified period of time.

Question 31

To obtain cash on delivery,goods may be shipped with a sight draft attached to a(n)___________________.

Question 32

If a note is not paid at maturity,it is said to be ___________________.

Question 33

The name given to the price charged for the use of money or credit is ___________________.

Question 34

A _______________ is a business document that lists the goods accepted for transportation by a carrier.

Question 35

A(n)____________________ is a written order that requires the person or business addressed to pay a stated sum of money to another person or firm.

Question 36

A 3-month note payable is classified as a(n)____________________ liability on the balance sheet.

Question 37

A 90-day note issued May 10 matures on ___________________.

Question 38

The dollar amount shown on an interest-bearing note is called the principal,or ____________________ value.

Question 39

The entry to record the issuance of a promissory note will include a ____________________ to Notes Payable.

Question 40

The amount of cash paid at maturity date on a $9,000 face value,60-day note bearing interest at 8 percent is ______________________.

Question 41

Upon collection of the amount due on a $6,000 face value,90-day note with interest at 10 percent a year,the Note Receivable account is

A) debited for $6,600.
B) credited for $6,000.
C) credited for $6,150.
D) debited for $6,000.

Question 42

On March 1,a firm purchased equipment for $5,000,signing a 30-day note bearing interest at 12 percent a year.The entry to record the payment of the amount due on March 31 will include a debit to Notes Payable for

A) $5,050 and a credit to Cash for $5,050.
B) $5,000 and a credit to Cash for $5,000.
C) $5,000,a debit to Interest Expense for $50,and a credit to Cash for $5,050.
D) $5,000,a debit to Interest Expense for $600,and a credit to Cash for $5,600.

Question 43

When a company issues a promissory note,the accountant records an entry that includes a credit to Note Payable for the

A) face value of the note.
B) face value of the note plus the interest that will accrue.
C) face value less the interest that will accrue.
D) maturity value of the note.

Question 44

The amount of cash paid at maturity date on a $9,000 face value,60-day note bearing interest at 6 percent is

A) $9,720.
B) $9,090.
C) $9,000.
D) $9,540.

Question 45

The maturity value of a 90-day note for $8,000 that bears interest at 10 percent a year is

A) $7,800.
B) $8,000.
C) $8,200.
D) $8,800.

Question 46

The total that must be paid when a note becomes due is known as the

A) principal.
B) face value.
C) note value.
D) maturity value.

Question 47

The maturity value of a 90-day note for $4,000 that bears interest at 10 percent a year is

A) $4,400.
B) $4,100.
C) $4,000.
D) $3,900.

Question 48

If the amount due on a note receivable is not collected at maturity,

A) Allowance for Doubtful Accounts should immediately be debited.
B) the note is said to be dishonored.
C) the face value of the note should continue to be carried in the Notes Receivable account until all possible means of collecting the note have been exhausted.
D) Uncollectible Accounts Expense should be debited.

Question 49

How much interest will accrue on a $40,000 face value,60-day note that bears interest at 9 percent a year?

A) $3,600
B) $1,800
C) $900
D) $600

Question 50

The maturity value of a 60-day note for $6,000 that bears interest at 6 percent a year is

A) $6,060.
B) $6,600.
C) $6,000.
D) $5,940.

Question 51

If the amount due on a note receivable is not collected at maturity,

A) Allowance for Doubtful Accounts should immediately be credited.
B) Accounts Receivable is debited for the maturity value.
C) the face value of the note should continue to be carried in the Notes Receivable account until all possible means of collecting the note have been exhausted.
D) Uncollectible Accounts Expense should be debited.

Question 52

The Jiminez Company accepted an interest-bearing note to settle a past-due account originating from a sale of merchandise.When the note is collected,the interest earned should be credited to

A) Interest Income.
B) Sales.
C) Allowance for Doubtful Accounts.
D) Notes Receivable.

Question 53

The maturity value of a 120-day note for $12,000 that bears interest at 8 percent a year is

A) $12,000.
B) $11,680.
C) $12,320.
D) $12,960.

Question 54

The Notes Receivable Discounted account

A) is shown as a deduction from Notes Receivable on the balance sheet.
B) has a debit balance.
C) is used to record the amounts due on dishonored notes.
D) is used to record the amount of interest deducted by the bank when a note is discounted.

Question 55

The amount of cash paid at the maturity date on a $12,000 face value,90-day note bearing interest at 10 percent is

A) $1,200.
B) $12,000.
C) $300.
D) $12,300.

Question 56

A firm purchased equipment for $12,000 on credit and issued a 120-day note bearing interest at 9 percent a year as evidence of the debt.To record this transaction,the accountant would debit

A) Equipment for $12,000 and credit Accounts Payable for $12,000.
B) Equipment for $12,000 and credit Notes Payable for $12,000.
C) Equipment for $12,360,credit Interest Expense for $360,and credit Notes Payable for $12,000.
D) Equipment for $12,000,debit Interest Expense for $360,and credit Notes Payable for $12,360.

Question 57

How much interest will accrue on a $20,000 face value,120-day note that bears interest at 9 percent a year?

A) $600
B) $900
C) $1,800
D) $3,600

Question 58

The Interest Income account

A) usually has a credit balance.
B) is usually shown in the Current Assets section of the balance sheet.
C) is debited when the firm records the effects of a dishonored note receivable.
D) is credited when the firm accepts a note receivable from a customer.

Question 59

Notes payable due within one year are usually shown in the

A) Current Assets section of the balance sheet.
B) Current Liabilities section of the balance sheet.
C) Other Expenses section of the income statement.
D) Long-Term Liabilities section of the balance sheet.

Question 60

On January 1,a firm purchased equipment for $10,000,signing a 30-day note bearing interest at 12 percent a year.The entry to record the payment of the amount due on January 31 will include a debit to Notes Payable for

A) $10,000 and a credit to Cash for $10,000.
B) $10,100 and a credit to Cash for $10,100.
C) $10,000,a debit to Interest Expense for $1,200,and a credit to Cash for $11,200.
D) $10,000,a debit to Interest Expense for $100,and a credit to Cash for $10,100.

Question 61

Compute the maturity value of a 9-month,9 percent note with a face value of $9,000.(round answer to 2 decimal places)

Question 62

Compute the amount of interest owed on a 90-day,10 percent note for $15,000.

Question 63

Compute the amount of interest owed on a 3-month,7 percent note for $12,000.

Question 64

Compute the maturity value of a 6-month,9 percent note with a face value of $5,000.

Question 65

The Notes Receivable Discounted account

A) is shown as a deduction from Notes Receivable on the balance sheet.
B) is a contra asset.
C) is used to acknowledge the contingent liability associated with a note.
D) all of these statements.

Question 66

Find the due date of a 60-day note issued on January 18,2013.

Question 67

Compute the amount of interest owed on a 6-month,9 percent note for $6,000.

Question 68

Compute the maturity value of a 30-day,8 percent note with a face value of $6,000.

Question 69

Find the due date of a 3-month note issued on September 12,2013.

Question 70

Compute the maturity value of a 60-day,7 percent note with a face value of $6,000.

Question 71

Compute the maturity value of a 180-day,6 percent note with a face value of $1,000.

Question 72

If the proceeds of a note discounted at a bank are greater than the face value of the note,the difference is recognized as

A) interest receivable.
B) interest expense.
C) notes receivable discounted.
D) interest income.

Question 73

Compute the maturity value of a 5-month,8 percent note with a face value of $8,000.(round answer to 2 decimal places)

Question 74

Which of the following statements is not correct?

A) When a note receivable is discounted,the proceeds are computed by subtracting the discount from the maturity value of the note.
B) The entry to record the discounting of a note receivable may result in the recognition of interest expense.
C) When a note is discounted at a bank,the proceeds are always less than the maturity value of the note.
D) When a note receivable is discounted at a bank,the entry to record the transaction includes a debit to cash.

Question 75

Compute the maturity value of a 90-day,10 percent note with a face value of $1,000.

Question 76

Find the due date of a 30-day note issued on November 10,2013.

Question 77

Compute the amount of interest owed on a 4-month,6 percent note for $7,000.

Question 78

Find the due date of a 90-day note issued on June 6,2013.

Question 79

Compute the maturity value of a 4-month,7 percent note with a face value of $4,000.(round answer to 2 decimal places)

Question 80

Compute the amount of interest owed on a 60-day,8 percent note for $9,000.