Question 1

Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account.

Accepted Answer

Writing off an uncollectible account under the allowance method affects only balance sheet accounts. It reduces the accounts receivable and the allowance for doubtful accounts, but it does not impact the income statement because the expense was already recognized when the allowance was initially estimated.

Question 2

When a company uses the allowance method of accounting for uncollectible receivables, which entry would not be found in the general journal?

Accepted Answer

Option B is the only entry that would not be found in the general journal when using the allowance method of accounting for uncollectible receivables. This entry represents a specific write-off of an uncollectible account and would be recorded in a special journal for such transactions. Options A and C represent adjusting entries to record estimated bad debts expense and the allowance for doubtful accounts, respectively. Option D represents a cash sale and the subsequent increase in accounts receivable, which would be recorded in the general journal.

Question 3

When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a previously written off account would include a

Accepted Answer

The answer of When a company uses the allowance method...

Question 4

When a company receives an interest-bearing note receivable, it will

Accepted Answer

The face value of a note receivable represents the amount of principal the borrower promises to pay back, whereas the maturity value includes the principal plus any interest that accrues over the life of the note. Since the note is interest-bearing, the borrower will pay back more than just the face value, so the company should record the note based on its face value as a debit to Notes Receivable.

Question 5

A 60-day, 12% note for $7,000, dated April 15, is received from a customer on account. The face value of the note is

Accepted Answer

The face value of a note refers to the principal amount or the original amount before any interest is added. In this case, the original amount is $7,000, which is the face value of the note. Interest calculations are separate and would be added to the face value for the total amount due at maturity.

Question 6

When referring to a note receivable or promissory note

Accepted Answer

A note receivable or promissory note can indeed be used to settle an accounts receivable, where the debtor issues a promissory note to the creditor, promising to pay the amount owed at a future date under specified terms. This formalizes the debt and can provide the creditor with a more secure claim.

Question 7

A 60-day, 9% note for $10,000, dated May 1, is received from a customer on account. The maturity value of the note is

Accepted Answer

The maturity value of the note can be calculated by adding the interest to the principal. 
Interest = (Principal x Rate x Time)/360
= (10,000 x 0.09 x 60)/360
= $150
Maturity value = Principal + Interest
= $10,000 + $150
= $10,150
Thus, the correct choice is B.

Question 8

The maturity value of a $40,000, 9%, 40-day note receivable dated July 3 is

Accepted Answer

The formula for calculating maturity value of a note receivable is:
Maturity value = Face value + Interest
In this case, face value is $40,000 and interest is calculated as:
9% * $40,000 * (40/360) = $400
Therefore, maturity value = $40,000 + $400 = $40,400.

Question 9

On August 1, Kim Company accepted a 90-day note receivable as payment for services provided to Hsu Company. The terms of the note were $20,000 face value and 6% interest. On October 30, the journal entry to record the collection of the note should include a

Accepted Answer

The answer of On August 1, Kim Company accepted a...

Question 10

The amount for which a promissory note is written is called the

Accepted Answer

The face value of a promissory note is the amount for which it is written, and represents the amount that the issuer has promised to pay to the holder of the note.

Question 11

A $6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal entry to recognize this event is

Accepted Answer

When a note is not paid at maturity, it is considered a dishonored note. To record this event, the Accounts Receivable account is debited for the full amount due ($6,000), the Notes Receivable account is credited for the same amount, and any interest that was accumulated on the note is also credited to Interest Revenue ($120). Therefore, the journal entry to recognize a dishonored note would be: debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; credit Interest Revenue, $120. Choice D is the only option that includes all of these accounts in the correct amounts.

Question 12

Interest on a note can be calculated without knowledge of the

Accepted Answer

The answer of Interest on a note can be calculated...

Question 13

If the maker of a promissory note fails to pay the note on the due date, the note is said to be

Accepted Answer

When a maker fails to pay the promissory note on the due date, it is said to be dishonored.

Question 14

The amount of the promissory note plus the interest earned on the due date is called the

Accepted Answer

The maturity value refers to the total amount due on the promissory note, including the principal amount borrowed and the interest that has accrued up to the due date. The face value refers only to the amount borrowed, while the issuance value refers to the initial value at which the note was issued. The interest value is not a commonly used term in this context.

Question 15

When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables, a major difference is that the direct write-off method

Accepted Answer

The answer of When comparing the direct write-off method and...

Question 16

Paper Company receives a $6,000, 3-month, 6% promissory note from Dame Company in settlement of an open accounts receivable. What entry will Paper Company make upon receiving the note?

Accepted Answer

Paper Company will debit Notes Receivable for $6,000 and credit Accounts Receivable-Dame Company for $6,000, as the note replaces the accounts receivable without any immediate interest revenue recognition.

Question 17

On October 1, Black Company receives a 9% interest-bearing note from Reese Company to settle a $20,000 account receivable. The note is due in six months. At December 31, Black should record interest revenue of

Accepted Answer

Interest revenue is calculated based on the principal amount, the annual interest rate, and the time period the note has been outstanding. Since the note is for 6 months at a 9% annual rate, for 3 months (October 1 to December 31), the interest revenue is $20,000 * 9% * (3/12) = $450.

Question 18

The journal entry to record a note received from a customer to replace an account is

Accepted Answer

When a note is received to replace an account receivable, the company debits Notes Receivable (indicating it now has a note receivable instead of an account receivable) and credits Accounts Receivable (indicating the reduction in accounts receivable).

Question 19

Harper Company lends Hewell Company $40,000 on March 1, accepting a four-month, 6% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared?

Accepted Answer

The interest for one month (March) needs to be accrued. The interest for one month is calculated as $40,000 * 6% * (1/12) = $200. Therefore, the adjusting entry is to debit Interest Receivable and credit Interest Revenue for $200.

Question 20

Allowance for Doubtful Accounts is classified as an) and has a normal balance.

Accepted Answer

The answer of Allowance for Doubtful Accounts is classified as...

Quiz 8: Receivables