Question 1

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.

Accepted Answer

When the amount due on a note receivable is not collected at maturity, the note is said to be dishonored. This means that the debtor has failed to pay the amount owed on the note by the due date, and the creditor must take additional steps to collect the amount due. The face value of the note should not continue to be carried in the Notes Receivable account until all possible means of collecting the note have been exhausted. Rather, the amount should be removed from the Notes Receivable account and a new entry should be made to reflect the dishonored note. No allowance or expense should be immediately recorded without further investigation.

Question 2

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.

Accepted Answer

The answer of On January 1, a firm purchased equipment...

Question 3

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.

Accepted Answer

The number of days used in computing the dollar amount of the discount is the number of days between the date the note was discounted and the date it matures, which is 60 days in this case. However, since the note was turned over for discounting on April 21, only 40 days are left until maturity. Therefore, the discount will be calculated based on 40 days. So, the answer is B.

Question 4

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.

Accepted Answer

The credit to Note Payable should be for the face value of the note, because this is the amount that the company is borrowing and will need to repay at maturity. The interest that will accrue should be recorded separately as an expense or interest payable.

Question 5

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.

Accepted Answer

Using the formula for simple interest, we can calculate the interest on the note: $6,000 x 60/360 x .06 = $60. Adding the interest to the principal gives us the maturity value: $6,000 + $60 = $6,060. Therefore, the answer is choice A.

Question 6

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.

Accepted Answer

The answer of Upon collection of the amount due on...

Question 7

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.

Accepted Answer

A 20-day note dated October 15, would be due on November 4.

Question 8

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.

Accepted Answer

Notes payable due within one year are considered as current liabilities as they are expected to be paid off within a year. Current liabilities are those obligations that are due within one year or within the operating cycle of the business, whichever is longer. Therefore, option B is the most appropriate choice.

Question 9

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.

Accepted Answer

The Notes Receivable Discounted account is shown as a deduction from Notes Receivable on the balance sheet because it represents the portion of the notes receivable that has been sold to a bank or other financial institution at a discount.

Question 10

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.

Accepted Answer

The interest earned from an interest-bearing note should be credited to Interest Income. This represents revenue earned by the company for loaning money to the customer. The other options, such as Sales or Allowance for Doubtful Accounts, do not accurately reflect the nature of the transaction. Notes Receivable is the account where the note itself is recorded, but it does not reflect the interest earned.

Question 11

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.

Accepted Answer

Using the formula for simple interest, we can calculate that the interest on the note is $200 (8,000 x 90/360 x .1 = 200). Adding the interest to the principal, the maturity value of the note is $8,200. Therefore, the best choice is C.

Question 12

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.

Accepted Answer

The answer of On March 1, a firm purchased equipment...

Question 13

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.

Accepted Answer

The equipment has been purchased on credit, which means the accounts payable account should be credited. The note payable hasn't been issued yet, so it cannot be credited. The interest on the note will be recorded separately when it is paid. Therefore, the correct answer is to debit equipment for $12,000 and credit notes payable for $12,000.

Question 14

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.

Accepted Answer

A one-month note is due exactly one month after the date it was issued, so a one-month note dated October 15 would be due on November 15.

Question 15

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.

Accepted Answer

Using the simple interest formula: I = PRT, where P = principal amount, R = interest rate (as a decimal), and T = time in years, we have:
I = (12,000)(0.08)(120/360) = 320
The maturity value (principal plus interest) is:
M = P + I = 12,000 + 320 = 12,320. Therefore, the answer is choice C.

Question 16

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.

Accepted Answer

The interest income account represents the income earned by a company from interest on its investments or loans. As this is a revenue account, it usually has a credit balance.

Question 17

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.

Accepted Answer

The maturity value of a 90-day note for $4,000 that bears interest at 10 percent a year is calculated as follows:
Interest = Principal x Rate x Time
Time is 90/360 or 0.25 (since there are 360 days in a year)
Interest = 4,000 x 0.10 x 0.25 = $100
Maturity value = Principal + Interest = $4,000 + $100 = $4,100. Therefore, the best choice is B.

Question 18

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.

Accepted Answer

If the proceeds of a note discounted at a bank are greater than the face value of the note, it means that the bank has deducted the discount or interest from the face value of the note before giving the cash to the borrower. The difference between the face value of the note and the cash received is the interest income earned by the bank. Therefore, the correct option is D - interest income.

Question 19

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.

Accepted Answer

The entry to record the issuance of a promissory note includes a credit to the Notes Payable account, not to Interest Payable. Interest Payable is credited as interest accrues over time and is typically recorded at the end of each accounting period.

Question 20

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.

Accepted Answer

When equipment is purchased on credit, the Equipment account is debited for the cost of the equipment, and the Notes Payable account is credited for the same amount since the firm issued a note as evidence of the debt. Interest will not be recorded until the time period specified on the note has elapsed. Therefore, there is no need to debit or credit Interest Expense at the time of the purchase.

Quiz 16: Notes Payable and Notes Receivable

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

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 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

When a company issues a promissory note, the accountant records an entry that includes a credit to Note Payable for the

The maturity value of a 60-day note for $6,000 that bears interest at 6 percent a year is

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

Notes payable due within one year are usually shown in the

The Notes Receivable Discounted account

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

The maturity value of a 90-day note for $8,000 that bears interest at 10 percent a year is

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

The maturity value of a 120-day note for $12,000 that bears interest at 8 percent a year is

The Interest Income account

The maturity value of a 90-day note for $4,000 that bears interest at 10 percent a year is

If the proceeds of a note discounted at a bank are greater than the face value of the note, the difference is recognized as

Which of the following statements is not correct?

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