Deck 16: Notes Payable and Notes Receivable

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

An ordinary check is one form of a draft.

Question 6

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

Question 7

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

Question 8

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

Question 9

Interest Income is classified as a current asset.

Question 10

A 2-month note dated January 1, 2019, will mature on the same date as a 60-day note dated January 1, 2019.

Question 11

Interest Expense usually appears on the income statement as a non-operating expense.

Question 12

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

Question 13

The Interest Expense account normally has a debit balance.

Question 14

The journal entry to record the payment of the amount due on a $4,000 face value, 60-day, 6 percent note, would include a debit to Notes Payable for $4,000.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

The Notes Receivable account normally has a credit balance.

Question 21

Notes Receivable Discounted represents a(n)liability.

Question 22

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

Question 23

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

Question 24

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 25

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

Question 26

The maturity date of a 90-day note issued May 10 is .

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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 stated 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 33

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 34

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

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

The interest on a $20,000 face value, 90-day note that bears interest at 9 percent is?

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

A firm purchased equipment for $16,000 on credit and issued a 120-day note bearing interest at 9 percent as evidence of the debt. The journal entry to record this transaction is

A)debit Equipment for $16,000 and credit Accounts Payable for $16,000.
B)debit Equipment for $16,480 and credit Notes Payable for $16,480.
C)debit Equipment for $16,000, and credit Notes Payable for $16,000.
D)Equipment for $16,000, debit Interest Expense for $1,440, and credit Notes Payable for
$17,440.

Question 42

The interest on a $40,000 face value, 120-day note that bears interest at 8 percent (Rounded to the nearest dollar. Assume 360 days in a year.)is

A)$3,200.
B)$1,067.
C)$900.
D)$267.

Question 43

On April 1, a firm purchased equipment for $5,000, signing a 60-day note bearing interest at 12 percent. The entry to record the payment of the amount at maturity is (Assume 360 days in a year.)

A)a debit to Notes Payable $5,100 and a credit to Cash for $5,100.
B)a debit to Notes Receivable for $5,000 and a credit to Cash for $5,000.
C)a debit to Accounts Payable $5,000, a debit to Interest Income for $600, and a credit to Cash for $5,600.
D)a debit to Notes Payable for $5,000, a debit to Interest Expense for $100, and a credit to Cash for $5,100.

Question 44

The maturity value of a 60-day note for $12,000 that bears interest at 8 percent is (Assume 360 days in a year.)

A)$12,160.
B)$11,840.
C)$12,960.
D)$11,040.

Question 45

The maturity value of a 180-day note for $8,000 that bears interest at 10 percent is (Assume 360 days in a year.)

A)$8,800.
B)$8,400.
C)$8,000.
D)$7,600.

Question 46

The maturity value of a $12,000 face value, 180-day note bearing interest at 10 percent is (Assume 360 days in a year.)

A)$600.
B)$12,600.
C)$1,200.
D)$13,200.

Question 47

The maturity value of a $90,000 face value, 90-day note bearing interest at 9 percent is (Assume 360 days in a year.)

A)$2,025.
B)$8,100.
C)$98,100.
D)$92,025.

Question 48

The maturity value of a 90-day note for $4,000 that bears interest at 10 percent is (Assume 360 days in a year.)

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

Question 49

The due date of a 60-day note dated October 15, is

A)December 12.
B)December 13.
C)December 14.
D)December 16.

Question 50

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

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

Question 51

The interest on a $20,000 face value, 90-day note that bears interest at 6 percent a year? (Assume 360 days in a year.)

A)$12,000
B)$3,000
C)$1,200
D)$300

Question 52

The journal entry to record the issue a promissory note, includes a credit to Note Payable for the

A)maturity 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)face value of the note.

Question 53

On May 1, a firm purchased equipment for $10,000, signing a 90-day note bearing interest at 12 percent. The entry to record the payment of the amount due on July 30 is (Assume 360 days in a year.)

A)debit Equipment $10,000 and a credit to Cash for $10,000.
B)debit Notes Receivable $11,200 and a credit to Cash for $11,200.
C)debit Notes Payable $10,000, a debit to Interest Expense for $300, and a credit to Cash for
$10,300.
D)a debit to Notes Payable $11,200, a debit to Interest Income for $1,200, and a credit to Cash for $11,200.

Question 54

The interest rate stated on a note receivable or note payable is always the interest rate for
A)one year.

A)the exact number of days of the note.
B)one month.
D)depends on the terms of the note.

Question 55

The due date of a one-month note dated October 11, is November

A)11.
B)12.
C)13.
D)14.

Question 56

The due date of a 120-day note dated October 9, is

A)February 5.
B)February 6.
C)February 7.
D)February 8.

Question 57

The due date of a 40-day note dated October 12, is

A)November 19.
B)November 20.
C)November 21.
D)November 22.

Question 58

Which of the following statements is not correct?

A)The entry to record the issuance of a promissory note includes a credit to Interest Payable for the amount of interest that will accrue on the note until it is paid at maturity.
B)The Notes Payable account is always debited or credited for the face value of a note.
C)The entry to record the issuance of a promissory note includes a credit to the Notes Payable account.
D)The entry to credit the payment of a note payable includes a debit to the Notes Payable account.

Question 59

A firm purchased equipment for $16,000 on credit and issued a 120-day note bearing interest at 9 percent as evidence of the debt. The journal entry to record payment of the note at maturity is

A)debit Notes Payable for $16,000 and credit Equipment for $16,000.
B)debit Cash for $16,480 and credit Notes Payable for $16,480.
C)debit Notes Payable for $16,480, credit Interest Expense $480, and credit Notes Payable for
$16,000.
D)debit Notes Payable for $16,000, debit Interest Expense $480, and credit Cash for $16,480.

Question 60

A firm purchased equipment for $6,000 on credit and issued a 120-day note bearing interest at 9 percent as evidence of the debt. The journal entry to record the issuance of the note is:

A)debit Equipment for $6,000, debit Interest Expense for $180 and credit Notes Payable for
$6,180.
B)debit Equipment for $6,180, credit Interest Expense for $180, and credit Notes Payable for
$6,000.
C)debit Equipment for $6,000, and credit Notes Payable for $6,000.
D)debit Equipment for $6,540, and credit Accounts Payable for $6,540.

Question 61

Compute the amount of interest owed on a 120-day, 8 percent note for $18,000.

Question 62

Compute the amount of interest owed on a 6-month, 12 percent note for $18,000.

Question 63

The Notes Receivable Discounted account

A)has a debit balance.
B)is shown as a deduction from Notes Receivable on the balance sheet.
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 64

Compute the amount of interest owed on a 180-day, 10 percent note for $10,000.

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 the choices are correct.

Question 66

The maturity value of a 120-day note for $18,000 that bears interest at 12 percent is

A)$18,000.
B)$20,160.
C)$18,720.
D)$17,280.

Question 67

Notes payable due within one year are shown in the

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

Question 68

The journal entry to record the collection of a Note Receivable at maturity value for a 120-day,
$36,000, 9 % note would include

A)debit to Interest Expense for $1,080.
B)credit to Notes Receivable for $37,080.
C)debit to cash for $36,000.
D)credit to Interest Income for $1,080.

Question 69

Compute the amount of interest owed on a 7-month, 6 percent note for $15,000.

Question 70

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

A)Allowance for Doubtful Accounts should immediately be credited.
B)Uncollectible Accounts Expense should be debited.
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)Accounts Receivable is debited for the maturity value.

Question 71

The maturity value of a 60-day note for $9,000 that bears interest at 6 percent is (Assume 360 days in a year.)

A)$9,000.
B)$9,090.
C)$9,540.
D)$8,460.

Question 72

Upon collection of the amount due on a $15,000 face value, 60-day note with interest at 10 percent, the Note Receivable account is

A)debited for $15,250.
B)credited for $16,150.
C)credited for $15,000.
D)debited for $15,000.

Question 73

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 74

A firm purchased equipment for $49,000 paying $19,000 cash at issued a 6%, 90-day note for the remaining balance. The journal entry to record the payment of the note at maturity is

A)debit Equipment for $49,000; credit Cash $19,000 and credit Notes Payable for $30,000.
B)debit Notes Payable for $30,000 and credit Cash for $30,000.
C)debit Notes Payable for $30,000 and debit Interest Expense for $450 and credit Cash for
$30,450.
D)debit Notes Payable for $49,000 and debit Interest Expense for $735 and credit Cash for
$49,735.

Question 75

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 76

The Jimenez 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)Allowance for Doubtful Accounts.

A)Interest Income.
B)Sales.
D)Notes Receivable.

Question 77

The Interest Income account

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

Question 78

A 60-day note dated April 1 was turned over to the bank for discounting on April 21. The number of days used in computing the dollar amount of the discount is

A)20.
B)40.
C)60.
D)30.

Question 79

Compute the amount of interest owed on a 5-month, 7 percent note for $12,000.

Question 80

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

A)the note is said to be dishonored.
B)Allowance for Doubtful Accounts should immediately be debited.
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.