Question 1

The discount period of a note consists of the interval between the date the note is given to the bank and the maturity date of the note.​

Accepted Answer

A) True 
 B)False  True

Question 2

On May 15, Winterz Company received a 90-day, 10 percent note from its customer for $5,000. Which of the following journal entries record the receipt of payment on the due date from the customer? Assume a 360-day year.

Accepted Answer

A)  Debit Accounts Receivable by $5,125; credit Notes Receivable by $5,000, credit Interest Income by $125 
B)  Debit Cash by $5,125; credit Notes Receivable by $5,000, credit Interest Income by $125 
C)  Debit Cash by $5,125; credit Notes Receivable by $5,125. No separate entry is required for interest. 
D)  Debit Cash by $4,875; credit Notes Receivable by $4,875. Interest is recorded before maturity. 
A)  Debit Accounts Receivable by $5,125; credit Notes Receivable by $5,000, credit Interest Income by $125 
B)  Debit Cash by $5,125; credit Notes Receivable by $5,000, credit Interest Income by $125 
C)  Debit Cash by $5,125; credit Notes Receivable by $5,125. No separate entry is required for interest. 
D)  Debit Cash by $4,875; credit Notes Receivable by $4,875. Interest is recorded before maturity. B

Question 3

Jenny Cosmetics bought $1,000 worth of merchandise from Glorial Company on account on June 16, with terms n/30. Glorial Company agreed to accept a 30-day, 8 percent, $1,000 note in settlement of the account. Which of the following journal entries records the original purchase in general journal form on Jenny's books?

Accepted Answer

A)  Debit Purchase by $1,000; credit Notes Payable by $1,000 
B)  Debit Purchase by $1,006.67; credit Accounts Payable, Glorial Company by $1,006.67 
C)  Debit Purchase by $1,000; credit Accounts Payable, Glorial Company by $1,000 
D)  Debit Purchase by $1,006.67; credit Notes Payable by $1,006.67 
A)  Debit Purchase by $1,000; credit Notes Payable by $1,000 
B)  Debit Purchase by $1,006.67; credit Accounts Payable, Glorial Company by $1,006.67 
C)  Debit Purchase by $1,000; credit Accounts Payable, Glorial Company by $1,000 
D)  Debit Purchase by $1,006.67; credit Notes Payable by $1,006.67 C

Question 4

Ross Company holds a 90-day, 6 percent note for $400 from one of its customers. The customer fails to pay by the due date. Assume a 360-day year. Which of the following is the correct treatment to record the transaction?

Accepted Answer

A)  Debit Accounts Receivable by $400; credit Notes Receivable by $400 
B)  Debit Accounts Receivable by $406; credit Notes Receivable by $400, credit Interest Income by $6 
C)  Debit Revenue by $400; credit Notes Receivable by $400 
D)  No entry unless payment is received from the customer 
A)  Debit Accounts Receivable by $400; credit Notes Receivable by $400 
B)  Debit Accounts Receivable by $406; credit Notes Receivable by $400, credit Interest Income by $6 
C)  Debit Revenue by $400; credit Notes Receivable by $400 
D)  No entry unless payment is received from the customer

Question 5

In discounting notes receivable, a financial institution generally discounts at a higher interest rate than stated in the note as it assumes _____ risk of maker's possible default.

Accepted Answer

A)  increased 
B)  decreased 
C)  equal 
D)  no 
A)  increased 
B)  decreased 
C)  equal 
D)  no

Question 6

The due date of a promissory note is specified as 90 days after April 15. The due date is _____.​

Accepted Answer

A)  ​July 14 
B)  ​July 13 
C)  ​July 01 
D)  ​July 31 
A)  ​July 14 
B)  ​July 13 
C)  ​July 01 
D)  ​July 31

Question 7

In discounting a note payable, the principal of the loan left after the discount has been subtracted is called the _____.

Accepted Answer

A)  proceeds 
B)  discounted principal 
C)  net principal 
D)  maturity value 
A)  proceeds 
B)  discounted principal 
C)  net principal 
D)  maturity value

Question 8

A note is considered discounted when its maker fails to pay the principal amount or to renew the note at maturity.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is true about a notes payable due within one year?

Accepted Answer

A)  It is classified as Current Asset on the balance sheet. 
B)  It is classified as Current Liabilities on the balance sheet. 
C)  It is classified as an Expense on the income statement. 
D)  It is classified as an Income on the income statement. 
A)  It is classified as Current Asset on the balance sheet. 
B)  It is classified as Current Liabilities on the balance sheet. 
C)  It is classified as an Expense on the income statement. 
D)  It is classified as an Income on the income statement.

Question 10

Omega Company granted an extension on an open account by accepting a 90-day, 6 percent note for $3,000, dated July 25. To raise cash, it sold the note to a bank on August 25. The bank charged a discount rate of 7 percent. Assume a 360-day year. Which of the following is the entry to record the transaction on August 25 in Omega Company's general journal? Round off the calculations to two decimal places.

Accepted Answer

A)  No entry till maturity date 
B)  Debit Cash by $2,975.07, Interest Expense by $24.96; credit Notes Receivable by $3,000 
C)  Debit Cash by $3,004.15, Discount by $45; credit Notes Receivable by $3,000, Interest Income by $40.85 
D)  Debit Cash by $3010.07; credit Interest Income by $10.07, Notes Receivable by $3,000 
A)  No entry till maturity date 
B)  Debit Cash by $2,975.07, Interest Expense by $24.96; credit Notes Receivable by $3,000 
C)  Debit Cash by $3,004.15, Discount by $45; credit Notes Receivable by $3,000, Interest Income by $40.85 
D)  Debit Cash by $3010.07; credit Interest Income by $10.07, Notes Receivable by $3,000

Question 11

A company bought merchandise worth $800 on account on September 16, with terms n/30. The supplier agreed to accept a 30-day, 6 percent, $800 note in settlement of the account. Which of the following journal entries records the issuance of the note in the general journal of the purchasing company?

Accepted Answer

A)  Debit Accounts Receivable by $820; credit Notes Payable by $820 
B)  Debit Supplier by $820; credit Notes Receivable by $820 
C)  Debit Accounts Payable by $800; credit Notes Receivable by $800 
D)  Debit Accounts Payable by $800; credit Notes Payable by $800 
A)  Debit Accounts Receivable by $820; credit Notes Payable by $820 
B)  Debit Supplier by $820; credit Notes Receivable by $820 
C)  Debit Accounts Payable by $800; credit Notes Receivable by $800 
D)  Debit Accounts Payable by $800; credit Notes Payable by $800

Question 12

A company accepts a 90-day, 9 percent, $1,200 note from one of its customers on June 15 in settlement of its account. Which of the following journal entries records the payment at maturity in the customer's general journal form? Assume a 360-day year.

Accepted Answer

A)  Debit Accounts Payable by $1,227; credit Cash by $1,227 
B)  Debit Notes Payable by $1,200, debit Interest Expense by $27; credit Cash by $1,227 
C)  Debit Notes Payable by $1,227; credit Cash by $1,227 
D)  Debit Accounts Payable by $1,227, credit Cash by $1,200; credit Interest Expense by $27 
A)  Debit Accounts Payable by $1,227; credit Cash by $1,227 
B)  Debit Notes Payable by $1,200, debit Interest Expense by $27; credit Cash by $1,227 
C)  Debit Notes Payable by $1,227; credit Cash by $1,227 
D)  Debit Accounts Payable by $1,227, credit Cash by $1,200; credit Interest Expense by $27

Question 13

Health Acer Company granted an extension on an open account by accepting a 60-day, 6 percent note for $5,000, dated July 20. To raise cash, it sold the note to a bank on August 20. The bank charged a discount rate of 7 percent. Assume a 360-day year. Calculate the amount of interest income/expense in the deal. Round off the calculations to two decimal places.

Accepted Answer

Interest to maturity date = $5,000 × .06

Question 14

Which of the following should be paid back by a borrower at the maturity of a note discounted by a bank?

Accepted Answer

A)  Only the face value of the note 
B)  Only the interest 
C)  Both the face value and interest 
D)  No payment required as the note is discounted by bank 
A)  Only the face value of the note 
B)  Only the interest 
C)  Both the face value and interest 
D)  No payment required as the note is discounted by bank

Question 15

Kate gives a 79-day, 10 percent note, to Windsor Company in the amount of $10,000. Which of the following is the interest to be paid on the note at maturity? Assume a 360-day year. (Round your answer to the nearest dollar.)

Accepted Answer

A)  $1,033 
B)  $219 
C)  $4,557 
D)  $797
​ 
A)  $1,033 
B)  $219 
C)  $4,557 
D)  $797
​

Question 16

Which of the following formulas calculates the amount of proceeds from a discounted notes receivable?

Accepted Answer

A)  Proceeds = Principal 
B)  Proceeds = Principal - Interest to maturity date 
C)  Proceeds = Principal + Interest to maturity date - Bank's discount 
D)  Proceeds = Principal + Bank's discount 
A)  Proceeds = Principal 
B)  Proceeds = Principal - Interest to maturity date 
C)  Proceeds = Principal + Interest to maturity date - Bank's discount 
D)  Proceeds = Principal + Bank's discount

Question 17

The _____ is a charge made for the use of money.

Accepted Answer

A)  principal of a note 
B)  maturity value of a note 
C)  interest on a note 
D)  dishonored value of a note 
A)  principal of a note 
B)  maturity value of a note 
C)  interest on a note 
D)  dishonored value of a note

Question 18

As a result of a loan from National Bank, Miama Company signed a 45-days note for $8,000 that the bank discounted at 8 percent. Assuming a 360-day year, the proceeds received by Miama Company equals _____.

Accepted Answer

A)  $8,000 
B)  $8,080 
C)  $7,920 
D)  $7,360 
A)  $8,000 
B)  $8,080 
C)  $7,920 
D)  $7,360

Question 19

The duration of a promissory note is:

Accepted Answer

A)  the period of time between its issue date and its maturity date. 
B)  the period of time between its issue date and the end of the calendar year. 
C)  the period of time between two consecutive interest payment dates of the note. 
D)  always fixed at one year. 
A)  the period of time between its issue date and its maturity date. 
B)  the period of time between its issue date and the end of the calendar year. 
C)  the period of time between two consecutive interest payment dates of the note. 
D)  always fixed at one year.

Question 20

Summerz Company granted an extension on an open account by accepting a 30-day note for $7,000 dated June 20, from SunnyView Company. To raise cash, Summerz sold the note to a bank on June 29. The days held by endorser and the discount period of the note is:​

Accepted Answer

A)  ​9 days and 21 days, respectively. 
B)  ​21 days and 9 days, respectively. 
C)  ​8 days and 22 days, respectively. 
D)  ​10 days and 20 days, respectively. 
A)  ​9 days and 21 days, respectively. 
B)  ​21 days and 9 days, respectively. 
C)  ​8 days and 22 days, respectively. 
D)  ​10 days and 20 days, respectively.

The discount period of a note consists of the interval between the date the note is given to the bank and the maturity date of the note.

On May 15, Winterz Company received a 90-day, 10 percent note from its customer for $5,000. Which of the following journal entries record the receipt of payment on the due date from the customer? Assume a 360-day year.

Ross Company holds a 90-day, 6 percent note for $400 from one of its customers. The customer fails to pay by the due date. Assume a 360-day year. Which of the following is the correct treatment to record the transaction?

In discounting notes receivable, a financial institution generally discounts at a higher interest rate than stated in the note as it assumes _____ risk of maker's possible default.

The due date of a promissory note is specified as 90 days after April 15. The due date is _____.

In discounting a note payable, the principal of the loan left after the discount has been subtracted is called the _____.

A note is considered discounted when its maker fails to pay the principal amount or to renew the note at maturity.

Which of the following is true about a notes payable due within one year?

A company bought merchandise worth $800 on account on September 16, with terms n/30. The supplier agreed to accept a 30-day, 6 percent, $800 note in settlement of the account. Which of the following journal entries records the issuance of the note in the general journal of the purchasing company?

A company accepts a 90-day, 9 percent, $1,200 note from one of its customers on June 15 in settlement of its account. Which of the following journal entries records the payment at maturity in the customer's general journal form? Assume a 360-day year.

Which of the following should be paid back by a borrower at the maturity of a note discounted by a bank?

Kate gives a 79-day, 10 percent note, to Windsor Company in the amount of $10,000. Which of the following is the interest to be paid on the note at maturity? Assume a 360-day year. (Round your answer to the nearest dollar.)

Which of the following formulas calculates the amount of proceeds from a discounted notes receivable?

The _____ is a charge made for the use of money.

As a result of a loan from National Bank, Miama Company signed a 45-days note for $8,000 that the bank discounted at 8 percent. Assuming a 360-day year, the proceeds received by Miama Company equals _____.

The duration of a promissory note is:

Summerz Company granted an extension on an open account by accepting a 30-day note for $7,000 dated June 20, from SunnyView Company. To raise cash, Summerz sold the note to a bank on June 29. The days held by endorser and the discount period of the note is:

Asset, Liability, Owners Equity, Revenue, and Expense Accounts

T Accounts, Debits and Credits, Trial Balance, and Financial Statements

The General Journal and the General Ledger

Adjusting Entries and the Work Sheet

Closing Entries and the Post-Closing Trial Balance

Bank Accounts, Cash Funds, and Internal Controls

Employee Earnings and Deductions

Employer Taxes, Payments, and Reports

Sales and Purchases

Cash Receipts and Cash Payments

Work Sheet and Adjusting Entries

Financial Statements, Closing Entries, and Reversing Entries

Methods of Depreciation

Bad Debts

Inventory Methods

Filters

Exam 16: Notes Receivablenotes Payable

The discount period of a note consists of the interval between the date the note is given to the bank and the maturity date of the note.​

On May 15, Winterz Company received a 90-day, 10 percent note from its customer for $5,000. Which of the following journal entries record the receipt of payment on the due date from the customer? Assume a 360-day year.

Ross Company holds a 90-day, 6 percent note for $400 from one of its customers. The customer fails to pay by the due date. Assume a 360-day year. Which of the following is the correct treatment to record the transaction?

In discounting notes receivable, a financial institution generally discounts at a higher interest rate than stated in the note as it assumes _____ risk of maker's possible default.

The due date of a promissory note is specified as 90 days after April 15. The due date is _____.​

In discounting a note payable, the principal of the loan left after the discount has been subtracted is called the _____.

A note is considered discounted when its maker fails to pay the principal amount or to renew the note at maturity.

Which of the following is true about a notes payable due within one year?

A company bought merchandise worth $800 on account on September 16, with terms n/30. The supplier agreed to accept a 30-day, 6 percent, $800 note in settlement of the account. Which of the following journal entries records the issuance of the note in the general journal of the purchasing company?

A company accepts a 90-day, 9 percent, $1,200 note from one of its customers on June 15 in settlement of its account. Which of the following journal entries records the payment at maturity in the customer's general journal form? Assume a 360-day year.

Which of the following should be paid back by a borrower at the maturity of a note discounted by a bank?

Kate gives a 79-day, 10 percent note, to Windsor Company in the amount of $10,000. Which of the following is the interest to be paid on the note at maturity? Assume a 360-day year. (Round your answer to the nearest dollar.)

Which of the following formulas calculates the amount of proceeds from a discounted notes receivable?

The _____ is a charge made for the use of money.

As a result of a loan from National Bank, Miama Company signed a 45-days note for $8,000 that the bank discounted at 8 percent. Assuming a 360-day year, the proceeds received by Miama Company equals _____.

The duration of a promissory note is:

Summerz Company granted an extension on an open account by accepting a 30-day note for $7,000 dated June 20, from SunnyView Company. To raise cash, Summerz sold the note to a bank on June 29. The days held by endorser and the discount period of the note is:​

Asset, Liability, Owners Equity, Revenue, and Expense Accounts

T Accounts, Debits and Credits, Trial Balance, and Financial Statements

The General Journal and the General Ledger

Adjusting Entries and the Work Sheet

Closing Entries and the Post-Closing Trial Balance

Bank Accounts, Cash Funds, and Internal Controls

Employee Earnings and Deductions

Employer Taxes, Payments, and Reports

Sales and Purchases

Cash Receipts and Cash Payments

Work Sheet and Adjusting Entries

Financial Statements, Closing Entries, and Reversing Entries

Methods of Depreciation

Bad Debts

Inventory Methods

Filters

The discount period of a note consists of the interval between the date the note is given to the bank and the maturity date of the note.

The due date of a promissory note is specified as 90 days after April 15. The due date is _____.

Summerz Company granted an extension on an open account by accepting a 30-day note for $7,000 dated June 20, from SunnyView Company. To raise cash, Summerz sold the note to a bank on June 29. The days held by endorser and the discount period of the note is: