Question 1

If the maker of the note fails to repay the borrowed amount on the maturity date, the note is said to be dishonored.

Accepted Answer

If the borrower fails to repay the borrowed amount on the maturity date, the note is considered dishonored. The maker of the note is the borrower.

Question 2

The entity that signs the promissory note and promises to pay the required amount is the:

Accepted Answer

The maker of the note is the entity that signs the promissory note and is obligated to pay the required amount. The banker of the note refers to the financial institution that may facilitate the transaction but is not responsible for making the payments. The holder of the note refers to the entity that is currently in possession of the promissory note, but may not necessarily be the maker. Payee of the note refers to the entity that receives the payments as specified in the note.

Question 3

What is the maturity value of a 3-month, 10% note for $40,000?

Accepted Answer

The maturity value of the note can be calculated as follows:
Maturity value = Principal + (Principal x rate x time)
Here, the principal is $40,000, the rate is 10% (or 0.1 as a decimal), and the time is 3 months (or 0.25 as a fraction, since there are 3 months in a quarter).
Maturity value = $40,000 + ($40,000 x 0.1 x 0.25)
Maturity value = $40,000 + $1,000
Maturity value = $41,000
Therefore, the correct answer is C.

Question 4

The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad debt expense. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015. Net credit sales for the year amounted to $250,000. Give journal entry to record the bad debts expense at December 31, 2015.

Accepted Answer

The answer of The Allowance for Bad Debts account has...

Question 5

The maturity value of a note is the sum of the principal minus interest due at maturity.

Accepted Answer

The maturity value of a note is the sum of the principal plus interest due at maturity.

Question 6

The interest period extends from the original date of the note to the maturity date.

Accepted Answer

This statement is true. The interest period is the time during which interest accrues on a loan or note, and it typically begins on the note's original date and ends on its maturity date.

Question 7

Calculate the interest on a 90-day, 9% note for $36,000. (Use a 360-day year to compute interest.)

Accepted Answer

The answer of Calculate the interest on a 90-day, 9%...

Question 8

On January 16, 2015, Whole Circle had sold goods worth $5,000 to Smith on account. It could not collect cash from the customer, and finally decided to write off the account on December 31, 2015.
However, in November 4, 2016, Smith approached the company to make payment, and made payment. Journalize the transactions on December 31, 2015 and November 4, 2016. (Whole Circle uses the allowance method.)

Accepted Answer

The answer of On January 16, 2015, Whole Circle had...

Question 9

The maturity value of a note is the:

Accepted Answer

The maturity value of a note is the amount that is due at the end of the note's term, which includes both the principal amount borrowed and the interest due on that amount. Therefore, the correct answer is B, as it is the sum of the principal amount and interest due.

Question 10

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the aging method to account for bad debts expense. It has calculated an amount of $200 as their estimate of uncollectible amounts at year-end. Prepare the journal entry required to record Bad debts expense at the end of the year.

Accepted Answer

The answer of Smart Art is a new establishment. During...

Question 11

On October 1, 2015, Ealys Jewellers accepted a 4-month, 12% note for $6,000 in settlement of an overdue account receivable. The company closes its accounts at the year end. Calculate and record the accrued interest on the note at December 31, 2015.

Accepted Answer

The interest for 3 months (October to December) is calculated as: $6,000 * 12% * (3/12) = $180.

Question 12

While counting the date of maturity of a note, the date of issue of the note should be omitted.

Accepted Answer

This is because the date of issue marks the starting point for the note's timeline, and is not considered in determining the note's maturity date.

Question 13

Which of the following would be included in the entry by the payee to record a dishonored note receivable?

Accepted Answer

When a note receivable is dishonored, it means that the debtor did not make the required payment, and therefore the payee (lender) is unable to collect the expected cash inflow. This means that the payee needs to reverse the original entry that was made when the note was recorded, and reclassify/adjust other accounts appropriately.

A) A debit to Accounts Receivable is the appropriate choice because it reduces the amount of accounts receivable owed by the debtor. 
B) A debit to Interest Revenue would not be appropriate because there is no revenue to be recognized when the note is dishonored (since the debtor did not make the payment). 
C) A debit to Notes Receivable is not the correct choice because Notes Receivable is the original account that was debited when the note was recorded, so it would not make sense to debit it again. 
D) A credit to Interest Expense would also not be appropriate because the payee is not incurring any new expenses - they are simply reversing the original entry made when the note was recorded.

Question 14

Interest rates are generally stated on a monthly basis.

Accepted Answer

Interest rates can be stated on a variety of different bases, including annually, quarterly, and daily. While interest rates can sometimes be expressed in monthly terms, this is not a universal standard.

Question 15

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and use a factor of 2% for their year-end adjustment of bad debts expense. Prepare the entry to record the bad debt expense.

Accepted Answer

The answer of Smart Art is a new establishment. During...

Question 16

Which of the following exists if the maker of a promissory note fails to pay the note on the due date?

Accepted Answer

If the maker of a promissory note fails to pay the note on the due date, it is considered as a dishonored note. A dishonored note is a promissory note that is not paid on the due date, which can result in legal action and damage to the credit of the borrower.

Question 17

On January 1, Ajax Corp accepted a one-year note for $50,000 at 5% from one of its customers. When the note matured on December 31, the customer was unable to pay, and the company recorded the dishonor. The amount of the debit in the dishonor entry would be:

Accepted Answer

The debit in the dishonor entry would be the total amount due, which includes the principal of $50,000 and the interest of $2,500 (5% of $50,000), totaling $52,500.

Question 18

A company issues a 60-day, 12% note for $15,000. What is the principal amount of the note?

Accepted Answer

The principal amount of the note is the amount borrowed, which is stated in the problem as $15,000. Therefore, the correct answer is B. The other answer choices are incorrect as they are either higher or lower than the amount borrowed.

Question 19

The entity to whom the promise of future payment is made for a promissory note is the:

Accepted Answer

The payee of a promissory note is the entity to whom the promise of future payment is made. The maker is the one who promises to pay, the endorser is someone who adds their own signature to the note as a guarantee of payment, and the banker is not directly involved in the transaction.

Question 20

The maturity date for a six-month note issued on January 15 would be:

Accepted Answer

The maturity date of a six-month note is six months after the issue date. Therefore, the maturity date for a note issued on January 15 would be July 15.

Quiz 9: Receivables