Deck 16: Notes Payable and Notes Receivable

Question 1

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

Answer 1

False

Question 2

A 2-month note dated January 1, 2010, will mature on the same date as a 60-day note dated January 1, 2010.

Answer 2

False

Question 3

The Interest Expense account usually has a credit balance.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

An ordinary check is one form of draft.

Question 8

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

Question 9

The amount of cash paid at maturity date on a $9,000 face value, 60-day note bearing interest at 8% is _____________________.
9000 x 60/360 x .08 = 120; 9000 + 120 = 9,120.

Question 10

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 11

Interest Income is classified as a current asset.

Question 12

The Notes Receivable account usually has a credit balance.

Question 13

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

Question 14

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

Question 15

The amount of interest that will accumulate on an $8,000 face value, 30-day note bearing interest at 12 percent is __________________.
8000 x 30/360 x .12 = 80.

Question 16

The interest on a $5,000 face value, 3-month note bearing interest at 9 percent a year would be $1,350.
5,000 x .09 x 3/12 = $112.50.

Question 17

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

Question 18

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

Question 19

The amount of cash received at maturity for a $5,000, 90-day, 6% note receivable is $75.
Cash received = 5075 = Interest (5,000 x 90/360 x .06 = $75) + principal ($5000).

Question 20

The dollar amount shown on a note is called the principal, or ____________________ value.

Question 21

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 20000 x 120/360 x .09 = 600.

Question 22

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 23

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

Question 24

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

Question 25

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 26

A 90-day note issued May 10 matures on __________________.
21 days in May + 30 days in June + 31 days in July = 82 days; 90 - 82 = 8 days into August.

Question 27

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 28

A 30-day note dated October 15, would be due on November

A) 14.
B) 15.
C) 16.
D) 17. 16 days in October + 14 days into November.

Question 29

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

Question 30

Notes Receivable Discounted represents a(n) ____________________ liability.

Question 31

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

A) $1,200
B) $12,000
C) $300
D) $12,300 12000 x 90/360 x .10 = 300; 12000 + 300 = 12300.

Question 32

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

Question 33

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

Question 34

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 or to the bearer.

Question 35

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 36

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 20,000 x 60/360 x 9% = $300.

Question 37

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

Question 38

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

Question 39

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 40000 x 60/360 x .09 = 600.

Question 40

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

A) $9,720
B) $9,090
C) $9,000
D) $7,200 9000 x 60/360 x .06 = 90; 9000 + 90 = 9090.

Question 41

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 42

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 43

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. 20 days had elapsed from April 1 to April 21.

Question 44

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 45

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. 6,000 x 60/360 x .06 = 60; 6,000 + 60 = 6,060.

Question 46

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 47

A 20-day note dated October 15, would be due on November

A) 4.
B) 5.
C) 6.
D) 7. 16 days in October + 4 days into November.

Question 48

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 49

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 50

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 51

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. 8,000 x 90/360 x .1 = 200; 8,000 + 200 = $8,200.

Question 52

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 53

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 54

A one-month note dated October 15, would be due on November

A) 14.
B) 15.
C) 16.
D) 17. One month note due on the same day exactly one month later.

Question 55

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) $12,120. 12,000 x 120/360 x .08 = 320; 12,000 + 320 = 12,320.

Question 56

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 57

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. 4,000 x 90/360 x .1 = 100; 4,000 + 100 = $4,100.

Question 58

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 59

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 60

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

Question 61

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

Question 62

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

Question 63

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 64

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

Question 65

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

Question 66

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 67

Find the due date of a 60-day note issued on January 18, 2010.

Question 68

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 69

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

Question 70

The Gaynor Company had the following transactions involving notes payable during 2011. Record the transactions on page 5 of a general journal. Omit descriptions.

Question 71

Find the due date of a 90-day note issued on June 6, 2010.

Question 72

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

Question 73

The Woo Corporation had the following transactions involving notes payable during 2013. Record the transactions on page 8 of a general journal. Omit descriptions.

Question 74

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

Question 75

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 76

Find the due date of a 30-day note issued on November 10, 2010.

Question 77

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

Question 78

Find the due date of a 3-month note issued on September 12, 2010.

Question 79

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

Question 80

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