Question 1

The interest rate stated on a note for 90 days is:

Accepted Answer

A) stated on a daily basis. 
B) stated on a monthly. 
C) stated on an annual basis. 
D) indeterminable.

Question 2

Interest expense is on a merchandise company's income statement under the heading:

Accepted Answer

A) Daily Expenses. 
B) Operating Expenses. 
C) Borrowing Expenses. 
D) Other Expenses or Interest Expense.

Question 3

A $6,500, 12% note dated April 23 for 88 days was discounted on June 2 at 14%. The number of days in the discount period is:

Accepted Answer

A) 88 days. 
B) 48 days. 
C) 40 days. 
D) some other number.

Question 4

Calculate the simple interest and maturity value for the following:
a)$15,000, 10%, 2 1/2 years
b)$ 3,800, 7%, 7 months
c)$ 8,400, 14%, 90 days

Accepted Answer

The answer of Calculate the simple interest and maturity value...

Question 5

The adjusting entry for accrued interest on a notes receivable includes:

Accepted Answer

A) a debit to Interest Expense; a credit to Interest Revenue. 
B) a debit to Accrued Interest Receivable; a credit to Interest Revenue. 
C) a debit to Interest Revenue; a credit to Accrued Interest Payable. 
D) a debit to Accrued Interest Receivable; a credit to Interest Payable.

Question 6

The maturity value for a $6500, 88-day note at 9% interest is $153.

Accepted Answer

A) True 
 B)False

Question 7

When Major endorsed customer Minor's note to Story County Bank, Major agreed to pay the note at maturity if Minor failed to pay. Major's liability is a(n):

Accepted Answer

A) contra-liability. 
B) absolute liability. 
C) contingent liability. 
D) regular liability.

Question 8

Johnson accepts a $5,000, 7%, 100-day promissory note from Adam on November 1. What is the adjusting entry made by Johnson on December 31 to recognize the interest (using a 360-day year)?

Accepted Answer

A) Debit Interest Expense; credit Interest Payable for $58.33 
B) Debit Interest Expense; credit Interest Payable for $97.22 
C) Debit Interest Receivable; credit Interest Income for $58.33 
D) Debit Interest Receivable; credit Interest Income for $97.22

Question 9

For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement that the account in which the account balance is reported, and in Column 4 the account's nature (temporary/permanent).
-

Accepted Answer

The answer of For each of the following, identify in...

Question 10

A written promise to pay a certain sum of money to another person or company is a:

Accepted Answer

A) Promissory Accounts Payable. 
B) Promissory Note Payable. 
C) Promissory Accounts Receivable. 
D) Promissory Note Receivable.

Question 11

Marble Company discounts a customer's 12%, $5,000, 60-day note dated August 1, on August 16. The discount period is 45 days, and the bank discount rate is 15%. The maturity value of the note is $5,100. The bank discount is:

Accepted Answer

A) $95.62. 
B) $31.88. 
C) $769.78. 
D) $43.25.

Question 12

Discount on Notes Payable is a contra-liability account that records interest deducted in advance.

Accepted Answer

A) True 
 B)False

Question 13

Ross, immediately after receiving a note from a customer, discounted it at the bank and received the proceeds. Ross's entry on his books would be to:

Accepted Answer

A) debit Cash and credit Notes Payable. 
B) debit Cash, credit Interest Income, credit Notes Receivable. 
C) debit Cash, debit Interest Expense, and credit Notes Receivable. 
D) debit Notes Receivable, credit Cash, and Interest Income.

Question 14

A 3-month note dated September 30 is due December 31.

Accepted Answer

A) True 
 B)False

Question 15

A promissory note:

Accepted Answer

A) is a written promise to pay. 
B) is an oral promise to pay. 
C) is due in 30 days. 
D) entitles the maker to a discount.

Question 16

For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement that the account in which the account balance is reported, and in Column 4 the account's nature (temporary/permanent).
-

Accepted Answer

The answer of For each of the following, identify in...

Question 17

Martin Company needs additional time to pay its accounts payable to Boster Company. Martin makes a written promise to pay Boster the amount on a certain date. Boster records this transaction as follows:

Accepted Answer

A) debit Notes Receivable; credit Accounts Receivable. 
B) debit Cash; credit Accounts Receivable. 
C) debit Accounts Receivable; credit Notes Receivable. 
D) debit Notes Receivable; credit Cash.

Question 18

Explain what happens to assets and to liabilities when a borrower issues a note payable for the purchase of equipment?

Accepted Answer

The answer of Explain what happens to assets and to...

Question 19

Prepare journal entries for the following transactions for Grant Company:

Accepted Answer

The answer of Prepare journal entries for the following transactions...

Question 20

When paying off a note payable, last year's accrual was ignored and the total interest was recorded as an expense. This error would cause:

Accepted Answer

A) the period end assets to be understated. 
B) the period end liabilities to be understated. 
C) the period's net income to be understated. 
D) the period's net income to be overstated.

Exam 14: Notes Receivable and Notes Payable

The interest rate stated on a note for 90 days is:

Interest expense is on a merchandise company's income statement under the heading:

A $6,500, 12% note dated April 23 for 88 days was discounted on June 2 at 14%. The number of days in the discount period is:

Calculate the simple interest and maturity value for the following: a)$15,000, 10%, 2 1/2 years b)$ 3,800, 7%, 7 months c)$ 8,400, 14%, 90 days

The adjusting entry for accrued interest on a notes receivable includes:

The maturity value for a $6500, 88-day note at 9% interest is $153.

When Major endorsed customer Minor's note to Story County Bank, Major agreed to pay the note at maturity if Minor failed to pay. Major's liability is a(n) :

Johnson accepts a $5,000, 7%, 100-day promissory note from Adam on November 1. What is the adjusting entry made by Johnson on December 31 to recognize the interest (using a 360-day year) ?

For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement that the account in which the account balance is reported, and in Column 4 the account's nature (temporary/permanent). -

A written promise to pay a certain sum of money to another person or company is a:

Marble Company discounts a customer's 12%, $5,000, 60-day note dated August 1, on August 16. The discount period is 45 days, and the bank discount rate is 15%. The maturity value of the note is $5,100. The bank discount is:

Discount on Notes Payable is a contra-liability account that records interest deducted in advance.

Ross, immediately after receiving a note from a customer, discounted it at the bank and received the proceeds. Ross's entry on his books would be to:

A 3-month note dated September 30 is due December 31.

A promissory note:

For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement that the account in which the account balance is reported, and in Column 4 the account's nature (temporary/permanent). -

Martin Company needs additional time to pay its accounts payable to Boster Company. Martin makes a written promise to pay Boster the amount on a certain date. Boster records this transaction as follows:

Explain what happens to assets and to liabilities when a borrower issues a note payable for the purchase of equipment?

Prepare journal entries for the following transactions for Grant Company:

When paying off a note payable, last year's accrual was ignored and the total interest was recorded as an expense. This error would cause: