Deck 14: Notes Receivable and Notes Payable

Question 1

In the basic formula for calculating interest,rate refers to:

A)percent per day.
B)percent per year.
C)percent per quarter.
D)percent per month.

Answer 1

B

Question 2

Using a 360-day year,interest calculated for 180 days on a $7,000,9% promissory note is:

A)$630.
B)$310.
C)$315.
D)some other amount.

Answer 2

C

Question 3

Harvey loaned $50 to Chase and received a promissory note.Chase is the:

A)maker.
B)drawee.
C)payee.
D)debtor.

Answer 3

A

Question 4

In the basic formula for calculating interest on a promissory note,principal refers to:

A)the original amount-the discount.
B)the amount of interest to be paid.
C)the original amount loaned or borrowed.
D)the maturity value.

Question 5

The basic formula for calculating the interest on a note is:

A)Interest = Principal × Rate × Time.
B)Interest = (Principal × Rate)- Time.
C)Interest = (Principal × Time)+ Rate.
D)Interest = Principal × Rate/ Time.

Question 6

The person or company that borrows money and signs a promissory note payable is the:

A)drawee.
B)drawer.
C)payee.
D)maker.

Question 7

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

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

Question 8

The maturity date for a 60-day note dated February 10,2012,a leap year is:

A)February 10.
B)April 10.
C)April 11.
D)April 9.

Question 9

Given a 360-day year,the interest expense on a $7,300,8%,77-day promissory note payable is:

A)$584.00.
B)$459.09.
C)$124.91.
D)some other amount.

Question 10

An advantage of a promissory note receivable over an account receivable is that it:

A)establishes formal proof against the borrower.
B)has a specified interest rate and maturity date.
C)collects interest revenue from the borrower.
D)All of these answers are correct.

Question 11

David borrows $2,000 from Matthew and gives him a promissory note.Matthew is the:

A)payee.
B)payor.
C)maker.
D)drawer.

Question 12

Interest calculated for one year on a $5,000,8% promissory note is:

A)$4.
B)$40.
C)$400.
D)some other amount.

Question 13

Interest on a $3,000,10% promissory note for four months is:

A)$300.
B)$30.
C)$100.
D)$75.

Question 14

The maturity date for a 66-day note dated June 29 is:

A)September 1.
B)September 2.
C)September 3.
D)August 31.

Question 15

A promissory note comes due on the:

A)discount date.
B)maturity date.
C)interest note.
D)issue date.

Question 16

A promissory note:

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 17

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

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

Question 18

Jane borrowed $1,000 from West Bank and signed a promissory note.Jane is:

A)the payee.
B)the drawee.
C)the creditor.
D)the maker.

Question 19

James borrowed $550 from Tracy.James promised in writing that he would repay the money to Tracy on May 13,200x.At the time of the loan,Tracy records the transaction as a(n):

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

Question 20

Morris Law Firm is borrowing $10,000 at 6% interest for one year.The $10,000 is the:

A)proceeds.
B)principal.
C)amount of interest.
D)net amount.

Question 21

Find the maturity dates for the following:
a)A 123-day note date March 22.
b)A 5-month note dated January 31.
c)A 75-day note dated February 21,2012,a leap year.

Question 22

The maturity value of a $3,000,12%,6-month note is:

A)$360.
B)$3,600.
C)$3,000.
D)$3,180.

Question 23

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

Question 24

Both Accounts Payable and Notes Payable are both informal promises to pay.

Question 25

On March 15,Ben Jones negotiated a $25,000 bank loan for 270 days at an interest rate of 8%.
Required (show your calculations):
a)Determine the due date of the note.
b)Calculate the amount of interest charged by the bank.
c)Calculate the maturity value of the note.

Question 26

A $10,000,7% note is dated May 18 and is due in 60 days.The due date would be:

A)July 15.
B)July 16.
C)July 17.
D)July 18.

Question 27

In computing interest,it is required to consider a 365-day year.

Question 28

The maker is the party to whom the note is payable.

Question 29

Scott Moore is considering accepting a $10,000,60-day,12% promissory note from Cory Gregor to extend additional time to settle a past-due account.Discuss some of the reasons why Moore would accept a promissory note from Cory Gregor.

Question 30

The formula for calculating interest on a note is: principal x rate x time.

Question 31

In calculating interest on a note,it is necessary to take which of the following into consideration?

A)The bank
B)The principal
C)The payee
D)The maker

Question 32

Maturity value is Principal + Discount.

Question 33

The maturity date for a four-month note dated January 31 is:

A)May 1.
B)April 30.
C)May 31.
D)April 29.

Question 34

Colo Bank accepts a promissory note for $3,000 from a customer on November 1,to be repaid in seven months plus 8% interest.The maturity value of the note is:

A)$3,240.
B)$3,140.
C)$3,075.
D)$3,000.

Question 35

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

Question 36

The maturity date of a 60-day note dated April 5 is June 3.

Question 37

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

Question 38

The terms payee and maker are interchangeable.

Question 39

A $10,000,7% note is dated May 18 and is due in 90 days.Using a 360-day year,the maturity value would be:

A)$10,000.
B)$10,700.
C)$10,175.
D)$10,525.

Question 40

A 90-day note dated July 9 would be due on October 9.

Question 41

Receiving payment from a customer on an interest bearing note would entail a credit to Interest Income.

Question 42

To obtain an extension of time for the payment of an account,a customer may issue a note for any portion of the amount due.

Question 43

Describe (a)the function of a promissory note and (b)explain its various parts and features.

Question 44

When an interest-bearing note comes due and is uncollectible,the journal entry includes:

A)debiting Notes Receivable; crediting Accounts Receivable.
B)debiting Notes Receivable; crediting Accounts Receivable and Interest Revenue.
C)debiting Accounts Receivable and crediting Interest Revenue.
D)debiting Accounts Receivable and crediting Notes Receivable and Interest Revenue.

Question 45

Brooke Company grants James Decorating additional time to pay its past due account.James makes a written promise to pay Brooke the amount on a certain date.James records this transaction as follows:

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

Question 46

A note that is not paid on the maturity date is considered dishonored.

Question 47

Cory issued a note to his creditor in exchange for an account.Cory records the transaction as follows:

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

Question 48

Jeff Company issues a promissory note to David Company to get extended time on an account payable.David records this transaction as follows:

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

Question 49

Tricia's Decor purchased merchandise from House Beautiful and issued a promissory note.Tricia should record the transaction as:

A)debit Purchases and credit Notes Payable for the principal amount of the note.
B)debit Purchases and credit Notes Payable for the maturity value of the note.
C)debit Purchases and credit Accounts Payable for the face amount of the note.
D)debit Purchases and credit Accounts Payable for the maturity value of the note.

Question 50

When an account receivable is exchanged for a note receivable,a shift in assets occurs.

Question 51

A promissory note received for granting a time extension to a charge customer would have which effect on the categories?

A)Total assets would be increased.
B)Total liabilities would be increased.
C)Owner's equity would be decreased.
D)None of these answers are correct.

Question 52

Straight Company sold merchandise to Cross Company and received a promissory note from Cross.Straight should record the transaction as:

A)debit Notes Receivable and credit Sales for the principal amount of the note.
B)debit Notes Receivable and credit Sales for the maturity value of the note.
C)debit Accounts Receivable and credit Sales for the maturity amount of the note.
D)debit Accounts Receivable and credit Sales for the principal amount of the note.

Question 53

The proper entry to make when a note is paid on the maturity date depends on whether the note is an interest-bearing or non-interest-bearing note.

Question 54

Prepare the journal entries for Fit City Company for the following transactions:
a)Fit sold $9,500 of merchandise to AllSport Company on account.
b)Fit City received a 90-day,$9,500,10% note for a time extension of past-due account of AllSport.
c)Collected the AllSport note on the maturity date.

Question 55

For the maker,being given additional time to settle an account with issuance of a note results in a shift of:

A)assets from Notes Receivable to Accounts Receivable.
B)assets from Accounts Receivable to Notes Receivable.
C)liabilities from Notes Payable to Accounts Payable.
D)liabilities from Accounts Payable to Notes Payable.

Question 56

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:

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 57

If your customer does not pay the note at maturity,the journal entry on your books would be:

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

Question 58

If a company does not pay its note payable on the agreed upon date,the note:

A)is renewed automatically for the same period of time.
B)is discounted at a higher rate of interest.
C)is dishonored by the vendor.
D)is automatically placed in collection with an outside agency.

Question 59

On November 10,Twister Rides issued a 14%,90-day,$15,000 promissory note.Twister should record the payment of the note on the maturity day as:

A)debit Notes Payable $15,525; credit Cash $15,525.
B)debit Notes Payable $15,000; debit Interest Payable $525; credit Cash $15,525.
C)debit Notes Payable $15,000; debit Interest Expense $525; credit Cash $15,525.
D)debit Notes Payable $15,000; credit Cash $15,000.

Question 60

Warner Enterprises was unable to collect a $1,000 note receivable plus $60 interest on the maturity date,but hoped to collect the amount in the future.Warner should record this as:

A)debit Bad Debts Expense $1,000; credit Notes Receivable $1,000.
B)debit Allowance for Doubtful Accounts $1,060; credit Notes Receivable $1,060.
C)debit Accounts Receivable $1,060; credit Interest Income $60; credit Notes Receivable $1,000.
D)debit Accounts Receivable $1,000; debit Interest Income $60; credit Cash $1,060.

Question 61

Prepare journal entries for the following transactions for Sysco Imports Company.
a)Purchased $4,000 of merchandise (periodic)from Clarke Industries Company on account.
b)Gave Clarke Industries Company a 60-day,9% note settlement of the account payable.
c)Sysco defaulted on its note on the maturity date.
d)Sysco paid the previously defaulted note plus $25 additional interest.

Question 62

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)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 63

The discount period begins with the date of issue and ends with the date of the discount.

Question 64

The amount the bank charges when it discounts a note is calculated as:

A)bank discount = note principal × bank discount rate × (discount period /360 days).
B)bank discount = maturity value × bank discount rate × (original note period /360 days).
C)bank discount = maturity value × bank discount rate + original interest rate (discount period /360 days).
D)bank discount = maturity value × bank discount rate × (discount period /360 days).

Question 65

Prepare the journal entries for the following transactions for Dobson Industries Company.
a)Dobson sold $5,000 of merchandise to Bolt Imports Company on account.
b)Dobson accepted a 60-day,9% note from Bolt in settlement of its account.
c)Bolt defaulted on its note on the maturity date.
d)Collected the previously defaulted Bolt note plus $25 additional interest.

Question 66

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:

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

Question 67

Prepare journal entries for the following transactions for Grant Company:

Question 68

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:

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

Question 69

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):

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

Question 70

The discount period on a discounted note is:

A)the same as the original period of the note.
B)the time between the original date and the discount date.
C)the time between the discount date and the maturity date.
D)the original note period minus 10 days.

Question 71

On February 15,Weber Services discounts a customer's 9%,90-day,$10,000 note dated January 10.The discount rate charged by the bank is 12%.The discount period is:

A)54 days.
B)36 days.
C)90 days.
D)0 days.

Question 72

Mountain Site discounts a customer's 12%,$6,000,90-day note dated July 1,on August The discount period is 45 days,and the bank discount rate is 18%.The maturity value of the note is $6,180.The bank discount is $139.The proceeds of the note are:

A)$6,041.
B)$6,319.
C)$5,861.
D)$6,139.

Question 73

Steadman's Computer endorses a customer's note dated June 17 to the bank on August The interest rate on the note is 10%,and the bank discount rate is 12%.The note matures on September 6.The discount period is:

A)21 days.
B)60 days.
C)81 days.
D)0 days.

Question 74

The entry to record the cash received on a note discounted at less than face value is to:

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

Question 75

When a company goes to a bank and exchanges a note for cash,the process is called discounting a note.

Question 76

The proceeds from discounting a note receivable are the:

A)principal + discount.
B)maturity value - discount.
C)principal - discount.
D)maturity value minus principal.

Question 77

A $6,500,12% note dated April 23 for 88 days was discounted on June 2 at 14%.The amount of the discount (using a 360-day year)is:

A)$780.00.
B)$190.67.
C)$124.89.
D)$115.56.

Question 78

When a business endorses a note and transfers it to a financial institution,the process is called:

A)dishonoring a note receivable.
B)collecting a note receivable.
C)cosigning a note receivable.
D)discounting a note receivable.

Question 79

Bill's Bikes discounts a 90-day,8%,$4,000 note at a bank at 12%.The discount period is 50 days.It records the proceeds as:

A)debit Cash $4,012; credit Notes Receivable $4,000; credit Interest Income $12.
B)debit Cash $4,160; credit Notes Receivable $4,080; credit Interest Income $80.
C)debit Cash $4,068,credit Notes Receivable $4,000; credit Interest Income $68.
D)debit Cash $4,012; credit Notes Receivable $4,000,credit Interest Expense $12.

Question 80

When a note receivable is discounted,the business that endorses the note becomes potentially liable to the bank.This type of liability is called a:

A)dependent liability.
B)contingent liability.
C)potential liability.
D)conditional liability.