Deck 14: Notes Receivable and Notes Payable

Question 1

Using a 360-day year,interest calculated for 90 days on a $9,000,6% promissory note is:

A)$135.
B)$540.
C)$450.
D)some other amount.

Answer 1

A

Question 2

A written promise to pay a certain sum of money to another person or company is a:

A)Promissory Accounts Payable.
B)Promissory Note Payable.
C)Promissory Accounts Receivable.
D)Promissory Note Receivable.

Answer 2

B

Question 3

Jane borrowed $1,000 from West Bank and signed a promissory note.West Bank is:

A)the payee.
B)the drawee.
C)the drawer.
D)the maker.

Answer 3

A

Question 4

The due date of a promissory note is known as the:

A)discount date.
B)issue date.
C)interest note.
D)maturity date.

Question 5

Given a 360-day year,the interest expense on a $10,000,6%,90-day promissory note payable is:

A)$150.
B)$1500
C)$510.
D)some other amount.

Question 6

The basic formula for calculating the interest on a note is:

A)Interest = Principal × Rate × Time.
B)Interest = (Principal × Rate)- Time.
C)Interest = (Principal × Time)+ Rate.
D)Interest = Principal × Rate/ Time.

Question 7

Interest on a $5,000,15% promissory note for six months is:

A)$375.
B)$37.50.
C)$3,750.
D)$3.75.

Question 8

In the basic formula for calculating interest on a promissory note,principal refers to:

A)the original amount - the discount.
B)the amount of interest to be paid.
C)the original amount loaned or borrowed.
D)the maturity value.

Question 9

In the basic formula for calculating interest,rate refers to:

A)percent per day.
B)percent per year.
C)percent per quarter.
D)percent per month.

Question 10

James borrowed $950 from Tracy.James promised in writing that he would repay the money to Tracy on May 13,201X.At the time of the loan,Tracy records the transaction as a(n):

A)Accounts Receivable.
B)Accounts Payable.
C)Promissory Note Receivable.
D)Promissory Note Payable.

Question 11

Davis Law Firm is borrowing $15,000 at 10% interest for one year.The $15,000 is the:

A)principal.
B)proceeds.
C)amount of interest.
D)net amount.

Question 12

Interest calculated for one year on a $8,000,6% promissory note is:

A)$4.80.
B)$480.
C)$48.
D)some other amount.

Question 13

The maturity date for a 77-day note dated June 28 is:

A)September 15.
B)September 14.
C)September 13
D)September 16.

Question 14

David borrows $4,000 from Matthew and gives him a promissory note.David is the:

A)payee.
B)payor.
C)maker.
D)drawee.

Question 15

An advantage of a promissory note receivable over an account receivable is that it:

A)establishes formal proof against the borrower.
B)has a specified interest rate and maturity date.
C)collects interest revenue from the borrower.
D)All of these answers are correct.

Question 16

A promissory note:

A)is a written promise to pay.
B)is an oral promise to pay.
C)is due in 30 days.
D)entitles the maker to a discount.

Question 17

Harvey loaned $450 to Chase and received a promissory note.Harvey is the:

A)maker.
B)drawee.
C)payee.
D)debtor.

Question 18

The interest rate stated on a note for 90 days is:

A)stated on a daily basis.
B)stated on a monthly basis.
C)stated on an annual basis.
D)indeterminable.

Question 19

The person or company promising to pay the note plus interest when it comes due is known as the

A)drawee.
B)creditor.
C)maker.
D)payee.

Question 20

The maturity date for a 90-day note dated February 10,2016,a leap year is:

A)May 10.
B)April 10.
C)May 11.
D)May 9.

Question 21

The maturity value of a $5,000,10%,9-month note is:

A)$375.
B)$5,000.
C)$5,375.
D)$4,625.

Question 22

In calculating interest on a note,it is NOT necessary to take which of the following into consideration?

A)The interest
B)The principal
C)The payee
D)The length of the note

Question 23

A $12,000,5% note is dated May 18 and is due in 90 days.Using a 360-day year,the maturity value would be:

A)$12,000.
B)$12,050.
C)$12,175.
D)$12,150.

Question 24

The maturity value for a $7500,78-day note at 8% interest is $130.

Question 25

On March 15,Ben Jones negotiated a $25,000 bank loan for 270 days at an interest rate of 8%.
Required (show your calculations):
a)Determine the due date of the note.
b)Calculate the amount of interest charged by the bank.
c)Calculate the maturity value of the note.

Question 26

A 90-day note dated July 9 would be due on October 7.

Question 27

The payee is the party to whom the note is payable.

Question 28

A 3-month note dated September 30 is due December 31.

Question 29

The maturity date of a 60-day note dated April 5 is June 4.

Question 30

A $10,000,7% note is dated June 18 and is due in 45 days.The due date would be:

A)Aug 1.
B)Aug 2.
C)Aug 3.
D)Aug 4.

Question 31

Find the maturity dates for the following:
a)A 103-day note dated April 22.
b)A 6-month note dated March 31.
c)A 80-day note dated February 12,2016,a leap year.

Question 32

In computing interest,it is required to consider a 365-day year.

Question 33

The maturity date for a three-month note dated March 31 is:

A)July 1.
B)June 30.
C)May 31.
D)June 29.

Question 34

Calculate the simple interest and maturity value for the following:
a)$10,000,10%,2 1/2 years
b)$3,500,5%,9 months
c)$8,000,14%,90 days

Question 35

The formula for calculating interest on a note is: principal × rate × time.

Question 36

Trust Worthy Bank accepts a promissory note for $6,000 from a customer on November 1,to be repaid in eight months plus 6% interest.The maturity value of the note is:

A)$6,240.
B)$6,140.
C)$6,075.
D)$6,000.

Question 37

Scott Moore is considering accepting a $10,000,60-day,12% promissory note from Cory Gregor to extend additional time to settle a past-due account.Discuss some of the reasons why Moore would accept a promissory note from Cory Gregor.

Question 38

The terms payee and maker refer to the same entity.

Question 39

Maturity value is Principal + Interest.

Question 40

Both Accounts Payable and Notes Payable are both formal promises to pay.

Question 41

Jeff Company issues a promissory note to David Company to get extended time on an account payable.Jeff Company records this transaction as follows:

A)debit Accounts Receivable;credit Notes Receivable.
B)debit Notes Receivable;credit Accounts Receivable.
C)debit Notes Payable;credit Accounts Payable.
D)debit Accounts Payable;credit Notes Payable.

Question 42

Describe (a)the function of a promissory note and (b)explain its various parts and features.

Question 43

When an account receivable is exchanged for a note receivable,a shift in equity occurs.

Question 44

Straight Company sold merchandise to Cross Company and received a promissory note from Cross.Straight should record the transaction as:

A)debit Notes Receivable and credit Sales for the principal amount of the note.
B)debit Notes Receivable and credit Sales for the maturity value of the note.
C)debit Accounts Receivable and credit Sales for the maturity amount of the note.
D)debit Accounts Receivable and credit Sales for the principal amount of the note.

Question 45

For the payee,being given additional time to settle an account with issuance of a note results in a shift of:

A)assets from Notes Receivable to Accounts Receivable.
B)assets from Accounts Receivable to Notes Receivable.
C)liabilities from Notes Payable to Accounts Payable.
D)liabilities from Accounts Payable to Notes Payable.

Question 46

Cory issued a note to his creditor in exchange for an account.Cory records the transaction as follows:

A)debit Notes Payable;credit Accounts Payable.
B)debit Notes Receivable;credit Accounts Receivable.
C)debit Accounts Payable;credit Notes Payable.
D)debit Accounts Receivable;credit Notes Payable.

Question 47

The proper entry to make when a note is paid on the maturity date depends on whether the note is an interest-bearing or non-interest-bearing note.

Question 48

To obtain an extension of time for the payment of an account,a customer may issue a note for any portion of the amount due.

Question 49

A note that is not paid on the maturity date is considered discounted.

Question 50

Prepare the journal entries for Fit City Company for the following transactions:
a)Fit City sold $7,500 of merchandise to AllSport Company on account.The company uses the periodic method.
b)Fit City received a 120-day,$7,500,8% note for a time extension of past-due account of AllSport.
c)Collected the AllSport note on the maturity date.

Question 51

When an interest-bearing note comes due and is uncollectible,the journal entry includes:

A)debiting Notes Receivable;crediting Accounts Receivable.
B)debiting Notes Receivable;crediting Accounts Receivable and Interest Revenue.
C)debiting Accounts Receivable;crediting Interest Revenue.
D)debiting Accounts Receivable;crediting Notes Receivable and Interest Revenue.

Question 52

Martin Company needs additional time to pay its accounts payable to Boster Company.Martin makes a written promise to pay Boster the amount on a certain date.Martin records this transaction as follows:

A)debit Notes Payable;credit Accounts Payable.
B)debit Cash;credit Accounts Payable.
C)debit Accounts Payable;credit Notes Payable.
D)debit Notes Payable;credit Cash.

Question 53

Tricia's Decor purchased merchandise from House Beautiful and issued a promissory note.Tricia should record the transaction as:

A)debit Purchases and credit Notes Payable for the principal amount of the note.
B)debit Purchases and credit Notes Payable for the maturity value of the note.
C)debit Purchases and credit Accounts Payable for the face amount of the note.
D)debit Purchases and credit Accounts Payable for the maturity value of the note.

Question 54

Brooke Company grants James Decorating additional time to pay its past due account.James makes a written promise to pay Brooke the amount on a certain date.Brooke Company records this transaction as follows:

A)debit Notes Receivable;credit Accounts Receivable.
B)debit Cash;credit Accounts Receivable.
C)debit Accounts Receivable;credit Notes Receivable.
D)debit Accounts Payable;credit Notes Payable.

Question 55

Warner Enterprises was unable to collect a $1,500 note receivable plus $75 interest on the maturity date,but hoped to collect the amount in the future.Warner should record this as:

A)debit Bad Debts Expense $1,500;credit Notes Receivable $1,500.
B)debit Allowance for Doubtful Accounts $1,575;credit Notes Receivable $1,575.
C)debit Accounts Receivable $1,500;credit Interest Income $75;credit Cash $1,575.
D)debit Accounts Receivable $1,575;credit Interest Income $75;credit Notes Receivable $1,500.

Question 56

Receiving payment from a customer on an interest bearing note would entail a debit to Interest Income.

Question 57

On November 10,Twister Rides issued a 12%,60-day,$10,000 promissory note.Twister should record the payment of the note on the maturity day as:

A)debit Notes Payable $10,200;credit Cash $10,200.
B)debit Notes Payable $10,000;debit Interest Expense $200;credit Cash $10,200.
C)debit Notes Payable $10,000;debit Interest Payable $200;credit Cash $10,200.
D)debit Notes Payable $10,000;credit Cash $10,000.

Question 58

A promissory note issued when receiving a time extension on an amount owed to a suppler would have which effect on the categories?

A)Total assets would be increased.
B)Total liabilities would be increased.
C)Owner's equity would be decreased.
D)None of these answers is correct.

Question 59

If your customer does not pay the note at maturity,the journal entry on your books would be:

A)debit Notes Payable and credit Accounts Payable.
B)debit Accounts Payable,credit Interest Income and credit Notes Payable.
C)debit Accounts Receivable,credit Interest Income and credit Notes Receivable.
D)debit Notes Receivable,credit Interest Income,and credit Accounts Receivable.

Question 60

If a company does not pay its note payable on the agreed upon date,the note:

A)is renewed automatically for the same period of time.
B)is discounted at a higher rate of interest.
C)is dishonored by the vendor.
D)is automatically placed in collection with an outside agency.

Question 61

Prepare the journal entries for the following transactions for Dobson Industries Company.
a)Dobson sold $8,000 of merchandise to Bolt Imports Company on account.The company uses the periodic method.
b)Dobson accepted a 90-day,7% note from Bolt in settlement of its account.
c)Bolt defaulted on its note on the maturity date.
d)Collected the previously defaulted Bolt note plus $25 additional interest.

Question 62

Prepare journal entries for the following transactions for Grant Company:
May 1 Purchased equipment from Knox,Inc.for $5,000 giving a 3 month 8% note
Aug.1 Paid amount due on note

Question 63

The proceeds from discounting a note receivable are the:

A)principal + bank discount.
B)maturity value - bank discount.
C)principal - bank discount.
D)maturity value minus principal.

Question 64

Prepare journal entries for the following transactions for Sysco Imports Company.
a)Purchased $6,000 of merchandise (periodic)from Clarke Industries Company on account.
b)Gave Clarke Industries Company a 150-day,6% note in settlement of the account payable.
c)Sysco defaulted on its note on the maturity date.
d)Sysco paid the previously defaulted note plus $25 additional interest.

Question 65

When a note receivable is discounted,the business that endorses the note becomes potentially liable to the bank.This type of liability is called a:

A)dependent liability.
B)contingent liability.
C)potential liability.
D)conditional liability.

Question 66

The discount period begins with the date of discount and ends with the maturity date.

Question 67

A $5,500,10% note dated May 20 for 78 days was discounted on June 23 at 12%.The amount of the discount (using a 360-day year)is:

A)$119.16.
B)$191.16
C)$124.89.
D)$82.41.

Question 68

The amount the bank charges when it discounts a note is calculated as:

A)bank discount = note principal × bank discount rate × (discount period /360 days).
B)bank discount = maturity value × bank discount rate × (original note period /360 days).
C)bank discount = maturity value × bank discount rate + original interest rate (discount period /360 days).
D)bank discount = maturity value × bank discount rate × (discount period /360 days).

Question 69

Bill's Bikes discounts a customer's 90-day,8%,$4,000 note at a bank at 12%.The discount period is 50 days.It records the proceeds as:

A)debit Cash $4,012;credit Notes Receivable $4,000;credit Interest Income $12.
B)debit Cash $4,160;credit Notes Receivable $4,080;credit Interest Income $80.
C)debit Cash $4,068,credit Notes Receivable $4,000;credit Interest Income $68.
D)debit Cash $4,012;credit Notes Receivable $4,000,credit Interest Expense $12.

Question 70

On March 5,Weber Services discounts a customer's 9%,60-day,$10,000 note dated January 20.The discount rate charged by the bank is 12%.The discount period is:

A)24 days.
B)16 days.
C)60 days.
D)0 days.

Question 71

Mountain Site discounts a customer's 10%,$7,000,90-day note dated August 1,on September 20.The discount period is 40 days,and the bank discount rate is 18%.The maturity value of the note is $7,175.The bank discount is $143.50.The proceeds of the note are:

A)$7,041.50.
B)$7,031.50.
C)$6,856.50.
D)$7,000.00.

Question 72

Ross,immediately after receiving a note from a customer,discounted it at the bank and received the proceeds.Ross's entry on his books would include a:

A)debit to Cash.
B)credit to Interest Income.
C)credit to Notes Receivable.
D)All of the above

Question 73

When a company goes to a bank and exchanges a note for cash,the process is called note trading.

Question 74

The process of endorsing a note and transferring it to a financial institution is known as:

A)dishonoring a note receivable.
B)discounting a note receivable.
C)cosigning a note receivable.
D)collecting a note receivable.

Question 75

Marble Company discounts a customer's 10%,$7,000,90-day note dated August 1,on September 20.The discount period is 40 days,and the bank discount rate is 15%.The maturity value of the note is $7,175.The bank discount is:

A)$95.62.
B)$31.88.
C)$119.58.
D)$43.25.

Question 76

When Major endorsed customer Minor's note to Story County Bank,Major agreed to pay the note at maturity if Minor failed to pay.Major's liability is a(n):

A)contra-liability.
B)absolute liability.
C)contingent liability.
D)regular liability.

Question 77

The entry to record the cash received on a customer's note discounted at less than face value would include a:

A)credit to interest income.
B)debit to notes receivable.
C)debit to interest expense.
D)All of the above

Question 78

Steadman's Computer endorses a customer's note dated June 17 to the bank on August 6.The interest rate on the note is 10%,and the bank discount rate is 12%.The note matures on September 6.The discount period is:

A)31 days.
B)60 days.
C)81 days.
D)0 days.

Question 79

A $5,500,10% note dated May 20 for 78 days was discounted on June 23 at 12%.The number of days in the discount period is:

A)78 days.
B)39 days.
C)44 days.
D)some other number.

Question 80

The discount period on a discounted note is:

A)the same as the original period of the note.
B)the time between the original date and the discount date.
C)the time between the discount date and the maturity date.
D)the original note period minus 10 days.