Deck 7: Cash and Receivables

Question 1

Compensating balance agreements that legally restrict cash should

A)only be described in the footnotes to the financial statements
B)be separately reported in the current assets portion of the balance sheet if they are against short-term borrowings
C)be separately classified as noncurrent assets on the balance sheet if they are against short-term borrowings
D)not be shown on the balance sheet

Answer 1

B

Question 2

Revenue from a credit sale may be deferred because

A)realization has occurred
B)the collectibility of the receivable is not reasonably assured
C)a right of return exists
D)both the collectibility is not reasonably assured and a right of return exists

Answer 2

D

Question 3

Which of the following would not be considered a cash equivalent?

A)certificates of deposit
B)commercial paper
C)treasury bills
D)money market fund securities

Answer 3

A

Question 4

Of the following items, which would be included in cash on hand and classified as a current asset? A. Negotiable checks
B. Certificates of deposit
C. Bank drafts
D. Coins and currency

A)A, B, C, and D
B)A, C, and D
C)A, B, and C
D)B, C, and D

Question 5

Given the following information: $\begin{array}{ll}\text { Petty cash fund } & \$ 500 \\\text { Postage stamps } & 24 \\\text { Cash on hand } & 3,240 \\\text { Traveler's checks } & 201 \\\text { Checking balance, First National Bank } & 20,400 \\\text { Checking balance, Third National Bank } & (1,000)\end{array}$ The total amount of cash that should appear on the balance sheet is

A)$24, 365
B)$24, 140
C)$23, 140
D)$24, 341

Question 6

Nontrade receivables, such as deposits with utility companies or advances to subsidiary companies, should be

A)recorded in separate accounts and reported as noncurrent assets on the balance sheet
B)recorded along with trade receivables in one account and included as part of the total receivables balance on the balance sheet
C)recorded in separate accounts and separately reported on the balance sheet
D)recorded in separate accounts and reported as an offset to retained earnings on the balance sheet

Question 7

Which of the following is not one of the criteria that must be satisfied for a seller to recognize revenue at the time of sale when the right of return exists?

A)The sales price is known at the time of sale.
B)The buyer's obligation to the seller would not change by theft or damage to the product.
C)The seller has significant obligations to help the buyer sell the product.
D)The seller can reasonably estimate the amount of future returns.

Question 8

Cash planning is important because a company wants to

A)ensure that it has adequate cash available to meet maturing obligations
B)ensure the safeguarding of its available cash
C)forecast all available cash surpluses
D)prepare a cash budget so it can invest all cash

Question 9

In order to be classified as a cash equivalent, an investment must have a maturity date of

A)less than six months
B)three to six months
C)six to twelve months
D)three months or less

Question 10

Which of the following statements concerning compensating balance agreements is not true?

A)They reduce the amount of cash available to the borrower.
B)They always involve legal restrictions on the cash received.
C)They increase the effective interest rate to the borrower.
D)They must be disclosed in the financial statements' footnotes.

Question 11

Compensating balance agreements that do not legally restrict the amount of funds shown on the balance sheet should be reported in the

A)current asset section
B)long-term investment section
C)other asset section
D)footnotes

Question 12

Cash control systems are the methods and procedures used to ensure

A)that current obligations are met
B)that excess cash does not exist
C)the safeguarding of cash
D)that unused cash is invested

Question 13

Items classified as "cash" on the balance sheet

A)are limited to coins, currency, or bank drafts
B)must be available to pay current obligations
C)may be subject to contractual restrictions
D)do not include negotiable checks or bank drafts

Question 14

Which is not a key element of internal control over cash receipts?

A)daily recording of all cash receipts in the accounting records
B)daily entry in a voucher register
C)immediate counting by the person opening the mail or using the cash register
D)daily deposit intact

Question 15

All of the following are necessary components of internal control over cash except

A)a petty cash system
B)a cash reserve
C)a bank reconciliation
D)the daily deposit of all receipts in the company's bank account

Question 16

If the right of return exists, which of the criteria below would suggest that the revenue recognition be deferred?

A)The seller does not have an obligation for future sales assistance.
B)The buyer's obligation to the seller would be changed by theft or damage to the product.
C)The amount of future returns can be reasonably estimated.
D)The buyer has economic substance apart from the seller.

Question 17

Which of the following would be included in cash and cash equivalents on the balance sheet?

A)certificates of deposit
B)bank overdrafts
C)commercial paper
D)postage stamps

Question 18

Which of the following is a key element of internal control over cash payments?

A)periodically reconciling the cash account balance on the company's books to the bank statement balance
B)making daily bank deposits
C)requiring that all petty cash vouchers be approved by two signatures
D)authorizing and verifying that all cash received is recorded daily

Question 19

All of the following are nontrade receivables except

A)accrued interest on investment
B)advances to subsidiary companies
C)travel advances to employees
D)deposits paid to utility companies

Question 20

Compensating balance agreements against short-term borrowings that legally restrict the amount of funds shown on the balance sheet should be reported in the

A)current asset section
B)long-term investment section
C)other asset section
D)footnotes

Question 21

When a company writes off an account receivable using the direct write-off method, the effect of this write-off on the financial statements is to

A)increase the net realizable value of accounts receivable
B)reduce total expenses
C)reduce total assets
D)increase working capital

Question 22

Theoretically, the amount of estimated future returns and allowances on credit sales should be recorded during the period of the sale so as not to overstate sales and ending accounts receivable.In practice, these estimates are rarely recorded because

A)the amount of such returns and allowances tends to fluctuate too greatly from period to period
B)there is too much uncertainty surrounding such estimates
C)such estimates are not allowed according to generally accepted accounting principles
D)the amount of such returns and allowances is usually not material

Question 23

In accounting for sales discounts, most companies use the

A)allowance method
B)gross price method
C)discounted price method
D)net price method

Question 24

During 2010, a company wrote off $6, 000 in uncollectible accounts receivable.At the end of the year, they estimated bad debt expense using a percent of gross sales.In 2011, the company recovered a $1, 000 account that was written off in 2010.The recording of this recovery would include a

A)debit to Retained Earnings
B)net change to gross accounts receivable
C)credit to Allowance for Doubtful Accounts
D)credit to Prior-Period Adjustments

Question 25

Which of the following would not be reported on the financial statements?

A)sales discount taken
B)trade receivables
C)trade discounts
D)sales discounts not taken

Question 26

When aging of accounts receivable is used, each age group is multiplied by its own estimated uncollectible percentage to determine each age group's estimated uncollectible amount.The sum of the amounts thus determined

A)is the bad debt expense for the year
B)is the correct balance for the allowance for doubtful accounts at year-end
C)is the amount added to the existing credit balance in the allowance account to determine the bad debt expense for the year
D)is the amount that should be written off as uncollectible for the year

Question 27

Which of the following methods may not be appropriate for estimating bad debt expense?

A)percentage of net credit sales
B)percentage of outstanding accounts receivable
C)aging of accounts receivable
D)percentage of sales

Question 28

A disadvantage of using the gross price method to account for cash discounts extended by the seller to its customer is that

A)the method reports accounts receivable at the net realizable value
B)the method overstates the current sales and the accounts receivable at the end of the period
C)the method requires more bookkeeping than the net price method
D)the method enables sales returns and allowances to be recorded at gross instead of net amounts

Question 29

Bad debt expense is normally reported on the income statement as a(n)

A)operating expense
B)offset against gross sales
C)financial expense in the other items section
D)contra-revenue amount

Question 30

The most theoretically sound method of accounting for cash discounts on credit sales is the

A)net price method
B)discounted price method
C)gross price method
D)net present value method

Question 31

The sales returns and allowances account is reported as a

A)contra-revenue account on the income statement
B)current liability on the balance sheet
C)deduction from accounts receivable on the balance sheet
D)selling expense on the income statement

Question 32

Which of the following is not a disadvantage of using the direct write-off method for recording uncollectible accounts?

A)reports actual losses
B)violates the matching principle
C)allows manipulation of income
D)overstates accounts receivable

Question 33

When the net price method is used to record credit sales, the sales discounts not taken account is reported as a(n)

A)addition to sales returns and allowances on the income statement
B)deduction from gross sales on the income statement
C)deduction from selling expenses on the income statement
D)addition to other revenue on the income statement

Question 34

Olympia Company sold merchandise on credit with a list price of $70, 000.Terms were 2/10, n/30.Given the indicated sales discounts methods in the responses, which entry is correct?

A)
$\begin{array} { c r } \text { Gross Price Method } & \\\text { Accounts Receivable } & 63,000 \\\text { Sales } & 63,000\end{array}$
B)
Net Price Method
Accounts Receivable $\quad 68,600$
Sales $\quad\quad\quad\quad\quad\quad\quad 68,600$
C)
$\begin{array}{ll}\text { Net Price Method } & \\\hline \text { Accounts Receivable } & 40,000 \\\text { Sales } & 40,000\end{array}$
D)
$\begin{array}{l}\text { Gross Price Method }\\\begin{array} { c r } \hline \text { Accounts Receivable } & 68,600 \\\text { Sales } & 68,600\end{array}\end{array}$

Question 35

When a company decides to sell its goods on credit, it should evaluate the effect on profit of $\begin{array}{ll}&\text { Adchtional } & \text { Additiona } \\&\text { Expenses } & \text { Revenues }\\\hline I.&\text { No } & \text { No } \\II.&\text { Yess } & \text { No } \\III.&\text { No } & \text { Yes } \\IV.&\text { Yes } & \text { Yes }\end{array}$

A)I
B)II
C)III
D)IV

Question 36

Most trade receivables are initially recorded at their

A)maturity values
B)discounted values
C)present values
D)net cash values

Question 37

The estimate of bad debt expense may be based on the historical relationships between actual bad debts incurred and $\begin{array}{ll}&\text { Accounts }\\&\text { Receivable}&\text {Sales }\\\hline I.&\text { Yes } & \text { No } \\II.&\text { No } & \text { No } \\III.&\text { No } & \text { Yes } \\IV.&\text { Yes } & \text { Yes }\end{array}$

A)I
B)II
C)III
D)IV

Question 38

Which of the following is an advantage of using the net price method for recording cash discounts on credit sales?

A)It eases communication with customers about their balances.
B)It properly reflects current period sales revenue.
C)It simplifies recording of sales returns and allowances.
D)It requires less record keeping than the gross method.

Question 39

When an uncollectible account is written off under the estimated bad debts method, it

A)decreases net income
B)increases working capital
C)increases the accounts receivable net realizable value
D)leaves total assets unchanged

Question 40

An advantage of basing bad debt expense on the historical relationship between bad debts and net credit sales is that

A)it provides the best estimate of the net realizable value of accounts receivable
B)it provides the best information to the credit department to use in its collection activities
C)it best adheres to the matching concept
D)it considers the balance in the allowance account when making the bad debt expense estimate

Question 41

Big Stores, Inc., accepts credit cards.The clearinghouse collection fee is 3%.If credit card sales are $75, 000 for the current month, the correct summary journal entry is

A)
$\begin{array}{cc}\text { Accounts Receivable } & 72,750 \\\text { Sales } & 72,750\end{array}$
B)
$\begin{array}{lr}\text { Accounts Receivable } & 75,000 \\\text { Sales } & 75,000\end{array}$
C)
$\begin{array}{cc}\text { Accounts Receivable } & 72,750 \\\text { Credit Card Expense } & 2,250 \\\text { Sales } & 75,000\end{array}$
D)
$\begin{array}{lc}\text { Accounts Receivable } & 75,000 \\\text { Credit Card Discount } & 2,250 \\\text { Sales } & 72,750\end{array}$

Question 42

What entry format is appropriate if sales returns and allowances occur on factored accounts?

A)
$\begin{array}{cc}\text { Sales Returns and Allowances } & \mathrm{XX} \\\text { Receivable from Factor } & \mathrm{XX}\end{array}$
B)
$\begin{array}{cc}\text { Receivable from Factor } & \text { XX } \\\text { Factoring Expense } & \text { XX }\end{array}$
C)
$\begin{array}{lc}\text { Sales Returns and Allowances } & \mathrm{XX} \\\text { Factoring Expense } & \mathrm{XX}\end{array}$
D)
$\begin{array}{cc}\text { Receivable from Factor } & \text { XX } \\\text { Accounts Receivable } & \text { XX }\end{array}$

Question 43

Which of the following is not a basic form of financing agreement to obtain cash from accounts receivable?

A)assigning
B)pledging
C)deferring
D)factoring

Question 44

Based on the following information: $\begin{array}{lr}\text {Sales returns and allowances(credit sales) }&\$ 20,000\\\text {Cash sales }&1,200,000 \\\text {Unadjusted balance in Allowance for Doubtful Accounts }&1,000\text { credit }\\\text {Creclit sales }&2,550,000\\\end{array}$
If bad debts are estimated to be 2% of net credit sales, the adjusting entry to recognize uncollectible accounts will include a debit to expense for

A)$52, 000
B)$51, 000
C)$50, 000
D)$50, 600

Question 45

When accounts receivable are assigned, the risk of ownership

A)and title pass to the finance company
B)and the title are retained by the borrowing company
C)passes to the finance company, but the title is retained by the borrowing company
D)is retained by the borrowing company, but the title is passed to the finance company

Question 46

The method for estimating bad debts that results in the accounts receivable being properly reported at its estimated net realizable value is the

A)aging of accounts receivable method
B)percentage of net sales method
C)percentage of sales method
D)percentage of outstanding accounts payable method

Question 47

If a company usually sells its accounts receivable, it records any factoring commissions as a(n)

A)loss
B)expense
C)receivable
D)liability

Question 48

When accounting for uncollectible accounts,

A)if the percentage of sales method is in use, any existing balance in the Allowance for Doubtful Accounts is the amount used in the adjusting entry
B)in current accounting practice, the most frequently used method of recognizing bad debts is the direct write-off method
C)writing off a specific receivable does not reduce the current ratio if the percentage of ending accounts receivable method is in use
D)an aging analysis results in reporting accounts receivable at their historical cost on the balance sheet

Question 49

A disadvantage of basing bad debt expense on the historical relationship between actual bad debts and the outstanding accounts receivable balance at the end of the year is that

A)it may not appropriately match current expenses against current revenues
B)it provides a reasonable estimate of the accounts receivable net realizable value
C)it is not a generally accepted accounting procedure
D)it is an income statement approach

Question 50

Based on the following information: $\begin{array}{ll}\text { Credit sales } & \$ 172,000 \\\text { Collections on accounts receivable during the year } & 170,000 \\\text { Cash sales } & 810,000 \\\text { Unadjusted balance in Allowance for Doubtful Accounts } & 40 \\\text { Sales returns and allowances for credit sales } & 2,000 \\\text { Accountsreceivable, beginning of the year } & 14,000\end{array}$ If bad debts are estimated to be 1 1/2% of ending accounts receivable, the adjusting entry to recognize bad debts will include a debit to Bad Debt Expense for

A)$170
B)$190
C)$210
D)$250

Question 51

Which of the following would not be a valid contributing justification for expanding your selling model to include selling goods on account?

A)market share increases
B)revenues generated always exceed the costs incurred
C)improved customer loyalty
D)customer convenience

Question 52

Which of the following conditions must be met by a company (the transferor)to record the transfer of accounts receivable for which it surrenders control to another company as a sale?

A)The transferred assets have been isolated from the transferor (i.e., put beyond the reach of the transferor).
B)The transferee obtains the right to exchange (e.g., sell)the transferred assets.
C)The transferor does not maintain effective control over the transferred assets through an agreement that entitles and obligates the transferor to repurchase the transferred assets before their maturity.
D)All of these conditions must be met.

Question 53

Under the allowance method of recording bad debts, which of the following entries, if any, would be made to write off actual uncollectible accounts of $3, 500?

A)
$\begin{array}{cr}\text { Allowance for Doubtful Accounts } & 3,500 \\\text { Accounts Receivable } & 3,500\end{array}$
B)
Bad Debt Expense $\quad 3,500$
Allowance for Doubtful Accounts $\quad 3,500$
C)
$\begin{array}{lr}\text { Bad Debt Expense } & 3,500 \\\text { Accounts Receivable } && 3,500\end{array}$
D)No entry is needed.

Question 54

The Steven Co.sells $50, 000 of accounts receivable to a factor and receives 92% of the value of the factored accounts less a 10% commission based on the gross amount of factored accounts receivable.After the journal entry to record this factoring transaction is made, Steven Co.'s total assets will be

A)reduced by $4, 000
B)reduced by $5, 000
C)reduced by $9, 000
D)increased by $41, 000

Question 55

Prior to the adjusting entry for bad debt expense, Funnel, Inc.'s balances for Accounts Receivable and Allowances for Doubtful Accounts were $720, 000 (debit)and $3, 500 (credit), respectively.After the bad debt expense entry was posted, the net realizable value of accounts receivable was $650, 000.Bad debt expense for the year

A)cannot be determined from the information given
B)was $66, 500
C)was $70, 000
D)was $73, 500

Question 56

Marx Company estimates bad debt expense using a percentage of credit sales (4%).The company began its current year with an $8, 500 balance in the allowance account.During the current year, $10, 500 of accounts receivable were written off, and $1, 200 of previously written off accounts were collected.Credit sales for the year were $200, 000.The bad debt expense for the year was

A)$10, 500
B)$ 7, 200
C)$ 8, 000
D)$ 6, 000

Question 57

Billings Corporation had total sales in the current year of $600, 000 and credit sales of $550, 000.The Accounts Receivable balance was $350, 000 on the balance sheet date and the Allowance for Doubtful Accounts had a credit balance of $10, 000 before adjusting entries.Bad debt expense is estimated as 2% of credit sales.The adjusting entry to record estimated bad debt expense would include a

A)$ 1, 000 debit to Bad Debt Expense
B)$11, 000 debit to Bad Debt Expense
C)$12, 000 debit to Bad Debt Expense
D)$ 2, 000 debit to Bad Debt Expense

Question 58

Transit Corporation estimates uncollectible accounts using a percentage of outstanding accounts receivable.After the year-end adjustment for bad debt expense was made, the company's records reflected the following information (in 000's): $\begin{array}{ll}\text { Accounts written off } & \$ 1,600 \\\text { Collection on accounts previously written off } & 300 \\\text { Allowance for uncollectible accounts at Januady } 1 & 1,700 \\\text { Accountsreceivable at December } 31 & 100,000 \\\text { Bad debt percentage } & 1.5 \%\end{array}$ The bad debt expense for the year was

A)$1, 100
B)$1, 400
C)$1, 500
D)$3, 000

Question 59

Fred's Fruit Smoothies began the year with a $3, 200 credit balance in its Allowances for Doubtful Accounts.During the year, it accrued $22, 000 of bad debt expense and wrote off accounts totaling $27, 000.At year-end, a percentage of the outstanding accounts receivable indicated that a $4, 800 allowance should be provided for on that date.The year-end adjustment for bad debt expense should be

A)$6, 600
B)$4, 800
C)$3, 000
D)$1, 600

Question 60

The method for estimating bad debts that results in current revenues and anticipated current expenses being matched is the

A)percentage of outstanding accounts receivable method
B)percentage of sales method
C)aging of accounts receivable method
D)direct write-off method

Question 61

Companies should use petty cash funds to

A)pay for employee parties
B)reimburse for all taxi usage
C)pay for minor business expenses
D)keep track of corporate postage

Question 62

Bedford Market's accountant is preparing its May bank reconciliation and has collected the following data: $\begin{array}{lll}&\text { Per Books }&\text { Per Bank }\\\text { May } 1 \text { balance } & \$ 11,600 & \$ 10,000 \\\text { May deposits } & 24,600 & 21,200 \\\text { May checks } & 27,800 & 29,000 \\\text { Note collected (includes 10\% interest) } & -- & 4,400 \\\text { May service charge } & -- & 20 \\\text { May 31 balance } & 8,400 & 6,580\end{array}$ Additionally, deposits in transit and outstanding checks from April's reconciliation were $4, 400 and $2, 800, respectively.
The correct balance for cash at May 31 should be

A)$10, 960
B)$12, 780
C)$11, 180
D)$13, 980

Question 63

On June 11, Eugene, Inc.accepted a $7, 000, 6%, 60-day note from a customer.On June 26, the company discounted the note at the bank at 8%.The proceeds amounted to

A)$7, 046.43
B)$6, 999.30
C)$6, 976.67
D)$7, 000.00

Question 64

The entry to replenish the petty cash fund for $100 of various minor expenditures would include a

A)debit to Petty Cash
B)debit to Cash
C)credit to Petty Cash
D)credit to Cash

Question 65

Exhibit 7-1 Martin & Cox, Inc.accepted a $50, 000, 8%, 90-day note receivable for services rendered to a client.Thirty days later, Martin & Cox discounted the note at a bank at 10%.Assume interest has not been recognized for the first month.

-
Refer to Exhibit 7-1.The entry to record the proceeds from the sale of the note would include a

A)debit to Notes Receivable for $50, 000
B)debit to Cash for $45, 000
C)credit to Interest Receivable for $333
D)credit to Interest Revenue for $333

Question 66

O'Rourke Co.reports assigned accounts receivable of $90, 000 that relate to an unpaid note payable of $40, 000.Correct balance sheet disclosure is

A)
Current assets:
Accounts receivable assigned $\quad\quad\quad \$ 90,000$
Less: Note payable $\quad\quad\quad\quad\quad\quad\quad \underline{40,000}$
Equity in accounts receivable assigned $\quad \$ 50,000$
B)
Current assets:
Equity in accounts receivable assigned $\quad\quad\quad \$ 50,000$
C)
Current assets:
Accounts receivable assigned $\quad\quad \$ 90,000$
Current liabilities:
Note payable $\quad\quad\quad\quad\quad\quad \$ 40,000$

D)
Current assets:
Accounts receivable assigned $\quad \$ 50,000$
Current liabilities:
Note payable $\quad\quad\quad\quad\quad\quad \$ 50,000$
Less: Accounts receivable assigned $\quad\quad\quad \frac{50,000}{\$-0-}$

Question 67

When a company discounts its notes receivable at a bank, the common practice is to record the discounted notes in a(n)

A)liability account
B)contra-asset account
C)asset account
D)expense account

Question 68

Which of the following reconciling items would require an adjusting journal entry on the company's books?

A)outstanding checks
B)Nonsufficient funds checks
C)deposits in transit
D)cash on hand

Question 69

If the transferor of accounts receivable cannot meet all conditions for a sale, the transferor records the proceeds received as a debit to Cash and records a corresponding credit to a(n)

A)deferred revenue account
B)deferred credit account
C)liability account
D)asset account

Question 70

Short-term noninterest-bearing notes receivable are usually recorded at their

A)present value
B)net realizable value
C)principal value
D)maturity value

Question 71

On September 1, 2010, Elite Company received an $80, 000, 12%, 120-day note from a credit customer wishing to extend its repayment period.On October 1, 2010, thirty days after the note was received, Elite discounted the note at the bank at 14%.How much cash did Elite Company receive from the bank?

A)$80, 800
B)$80, 749
C)$80, 288
D)$79, 317

Question 72

Current GAAP requires a company to disclose the fair value of its financial instruments and to disclose all significant concentrations of credit risk due to its financial instruments.The FASB's rationale for this disclosure includes allowing readers to

A)better identify major customers
B)compute each company's risk
C)better determine a company's financial flexibility
D)compute liquidity ratios

Question 73

Exhibit 7-1 Martin & Cox, Inc.accepted a $50, 000, 8%, 90-day note receivable for services rendered to a client.Thirty days later, Martin & Cox discounted the note at a bank at 10%.Assume interest has not been recognized for the first month.

-
Refer to Exhibit 7-1.The entry to record the proceeds from the sale of the note would include a

A)debit to Cash for $50, 150
B)debit to Cash for $45, 900
C)credit to Interest Receivable for $333
D)credit to Interest Expense for $333

Question 74

On a bank reconciliation, customers' checks that are returned for lack of funds would be

A)deducted from the balance per company records
B)deducted from the balance per bank statement
C)added to the balance per bank statement
D)added to the balance per company records

Question 75

When preparing a bank reconciliation, outstanding checks would be

A)added to the balance per bank statement
B)deducted from the balance per company records
C)deducted from the balance per bank statement
D)added to the balance per company records

Question 76

Which statement is not true?

A)Notes receivable initially should be recorded at the present value of the future cash receipts on the date of issue.
B)All notes implicitly carry interest.
C)Discount on Notes Receivable is a contra account frequently found with interest-bearing notes.
D)The account Notes Receivable Dishonored is an asset account.

Question 77

On April 3, First State Bank loaned a customer $30, 000 on a 60-day, 10% note, remitting the face value less the interest to the customer.Which of the following journal entries would First State Bank use to record the receipt of the note?

A)
$\begin{array}{lc}\text { Notes Receivable } & 30,000 \\\text { Interest Revenue } & 3,000 \\\text { Cash } & 27,000\end{array}$
B)
$\begin{array}{lc}\text { Notes Receivable } & 30,000 \\\text { Cash } & 30,000\end{array}$
C)
$\begin{array}{lc}\text { Notes Receivable } & 30,500 \\\text { Interest Revenue } & 500 \\\text { Cash } & 30,000\end{array}$
D)
$\begin{array}{lc}\text { Notes Receivable } & 30,000 \\\text { Interest Revenue } & 500 \\\text { Cash } & 29,500\end{array}$

Question 78

On October 1, Bonnie's Online Sales sold goods for $20, 000 and accepted a six-month noninterest-bearing note.Current interest rates were 12%.The December 31 adjusting entry should be

A)
$\begin{array}{cr}\text { Interest Receivable } & 1,200 \\\text { Interest Revenue } & 1,200\end{array}$
B)
$\begin{array}{cc}\text { Discount on Notes Receivable } & 600 \\\text { Interest Revenue } & 600\end{array}$
C)
$\begin{array}{cc}\text { Discount on Notes Receivable } & 1,200 \\\text { Interest Receivable } & 1,200\end{array}$
D)
$\begin{array}{ccc}\text { Interest Revenue } & 600 & \\\text { Discount on Notes Receivable } & 600\end{array}$

Question 79

On May 17, Otay Olive Co.accepted a $6, 500, 8%, 90-day note from a customer.On June 11, the note was discounted at 10%.At maturity date, the note was dishonored and the bank charged a $25 protest fee.The amount that Otay Olive Co.would debit to Notes Receivable Dishonored is

A)$6, 655.00
B)$6, 535.29
C)$6, 525.00
D)$6, 130.00

Question 80

When pledging accounts receivable

A)title to the receivables reverts to the lender
B)the pledges are usually done with recourse
C)the pledge arrangements become the new valuation methodology entered in the accounting records
D)collection responsibility reverts to the lender