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Notes payable are formal credit arrangements that require the payment of a specified face amount of principal at a fixed maturity date.

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True False

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Answer:

True

Short-term notes payable are reported on the balance sheet as current liabilities when they are due and payable within one year from the balance sheet date or operating cycle, whichever is longer.

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True False

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True

Short-term debt typically carries a higher interest rate than long-term notes.

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True False

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False

A company records interest expense by debiting the expense account and crediting notes payable.

True False

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Proceeds on the issuance and repayment of the principal on short-term notes payable are generally reported as financing activities on the statement of cash flows.

True False

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Interest payments are classified as cash flows from financing activities on the statement of cash flows.

True False

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While the payment on an installment loan is the same each period, the amount applied to principal decreases each period.

True False

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A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

True False

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If a long-term note does not have a stated rate of interest, the note is discounted at the market rate of interest.

True False

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Harrison Corporation borrowed $36,000 from F&M Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Multiple Choice

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Harrison Corporation borrowed $31,000 from F&M Bank on June 1 of the current year. The bank required 9% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the subsequent year in which the note is due and paid? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Multiple Choice

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Harrison Corporation borrowed $30,000 from F&M Bank on June 1 of the current year. The bank required 9% interest. Interest will be paid when the nine-month note becomes due. What is the amount that will be paid upon maturity of the note? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Multiple Choice

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Jacobsen, Inc. borrowed $700,000 from F&M Bank on June 15 of the current year. The bank required 6% interest. Interest will be paid when the 12-month note becomes due. What amount should be accrued as Interest Payable for the December 31 year-end of the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Multiple Choice

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Morrison Corporation borrowed $49,000 from Commercial Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid every three months until the 9-month note is paid. What is the total Interest Expense and the Interest Payable at December 31 of the current year? (Do not round intermediate calculations. Only round your final answer to the nearest cent.)

Multiple Choice

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The Hudson Company borrowed $250,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note. Each note payment is $47,690. How much interest is Hudson paying over the life of the loan? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Multiple Choice

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On January 1, the Hudson Company borrowed $160,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note. Each note payment is $30,522 and is due on the last day of the year. How much interest will Hudson report for the first year of the loan? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Multiple Choice

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On January 1, the Hudson Company borrowed $190,000 to purchase machinery and agreed to pay 8% interest for six years on an installment note. Each note payment is $41,100 and is due on the last day of the year. What is the carrying value of the loan at the end of the first year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Multiple Choice

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Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $280,000 on December 31, 2020 and asked for a 5% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the selling price of the machine given the terms and rates provided? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.)

Multiple Choice

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Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $260,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 10%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the amount of cash interest paid at the end of 2018?

Multiple Choice

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Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $300,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the carrying value of the note at the end of 2018? (Round any intermediary calculations and your final answer to the nearest dollar.)

Multiple Choice

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