Question 1

Uniform Supply accepted a $4,800,90-day,10% note from Tracy Janitorial on October 17.What entry should Uniform Supply make on December 31,to record the accrued interest on the note?

Accepted Answer

To record the accrued interest on the note, Uniform Supply should debit Interest Receivable for the amount of interest earned but not yet received ($400, calculated as $4,800 x 10% x 3/12) and credit Interest Revenue for the same amount. Therefore, the correct entry is:

Debit: Interest Receivable $400
Credit: Interest Revenue $400

Option D is the only one that includes both a debit to Interest Receivable and a credit to Interest Revenue for the correct amount of $100.

Question 2

Lemming makes an $18,750,120-day,8% cash loan to Notions Co.on November 1.Lemming's end-of-period adjusting entry on December 31 should be:

Accepted Answer

C)Debit Interest Receivable $250; credit Interest Revenue $250.To calculate the interest for the period from November 1 to December 31 (61 days), use the formula: Principal * Rate * Time = Interest. Here, Principal = $18,750, Rate = 8% (or 0.08 as a decimal), Time = 61/365 (since interest rates are annual and there are 61 days out of a 365-day year). The calculation is $18,750 * 0.08 * (61/365) = $250. This interest hasn't been paid by December 31, so it's recorded as Interest Receivable (an asset) and Interest Revenue (reflecting the income earned).

Question 3

The amount due on the maturity date of a $6,000,60-day 4%,note receivable is: (Use 360 days a year.)

Accepted Answer

The interest on the note is calculated as follows: Interest = Principal × Rate × Time = $6,000 × 4% × (60/360) = $6,000 × 0.04 × (1/6) = $240. Therefore, the total amount due on the maturity date is the principal plus interest, which is $6,000 + $240 = $6,240. However, there seems to be a mistake in my explanation regarding the final total amount due; the correct calculation of the total amount due is $6,000 + $40 = $6,040, reflecting the correct choice as D.

Question 4

Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash.Northern Bank charges a 5% factoring fee.What entry should Jervis make to record the transaction?

Accepted Answer

When Jervis sells $75,000 of its accounts receivable to Northern Bank, it should debit Cash for the amount it receives after factoring fees, which is $71,250 ($75,000 - 5% * $75,000). It should also debit Factoring Fee Expense for the factoring fee charged by Northern Bank, which is $3,750 (5% * $75,000). Finally, it should credit Accounts Receivable for the amount sold, which is $75,000. Therefore, the correct entry is: Debit Cash $71,250; Debit Factoring Fee Expense $3,750; Credit Accounts Receivable $75,000.

Question 5

Which of the following is not true about the Allowance for Doubtful Accounts?

Accepted Answer

The Allowance for Doubtful Accounts is not a liability account, but a contra asset account. It is used to reduce the carrying value of accounts receivable to its net realizable value by estimating and accounting for uncollectible accounts.

Question 6

Brinker accepts all major bank credit cards,including First Savings Bank's,which assesses a 2.5% charge on sales for using its card.On May 26,Brinker had $4,800 in First Savings Bank Card credit sales.What entry should Brinker make on May 26 to record the deposit?

Accepted Answer

Brinker had $4,800 in credit sales using First Savings Bank's card, which assesses a 2.5% charge on sales. Therefore, Brinker will receive $4,680 (97.5% of $4,800) and will pay a fee of $120 (2.5% of $4,800). The entry to record the deposit should be a debit to Cash for $4,680 and a debit to Credit Card Expense for $120, and a credit to Sales for $4,800.

Question 7

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day,6% promissory note for the $4,000.Food Supplier's journal entry to record the sales transaction is:

Accepted Answer

The correct journal entry for Food Suppliers to record the sales transaction involving a promissory note is to debit Notes Receivable for the principal amount of the note ($4,000) and credit Sales for the same amount ($4,000). This reflects the fact that a note receivable, rather than an account receivable, is created when a promissory note is issued by the buyer. Interest is not recorded at the time of the sale but rather over the life of the note or when it is realized.

Question 8

Uniform Supply accepted a $4,800,90-day,10% note from Tracy Janitorial on October 17.If the note is dishonored,but Uniform Supply intends to continue collection efforts,what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.)(Use 360 days a year.)

Accepted Answer

When a note is dishonored and the company intends to continue collection efforts, the amount due (principal plus interest) is transferred from Notes Receivable to Accounts Receivable. The interest for 90 days on a $4,800 note at 10% annual interest is $120 ([$4,800 x 10%] x [90/360]), making the total $4,920. The entry reflects moving the balance to Accounts Receivable and recognizing the interest that has accrued.

Question 9

On July 9,Mifflin Company receives a $8,500,90-day,8% note from customer Payton Summers as payment on account.Compute the maturity date for the note.

Accepted Answer

The maturity date of a 90-day note issued on July 9 is October 7. This is calculated by adding 90 days to the issue date, taking into account the number of days in each month (July has 22 days remaining, August has 31 days, and September has 30 days). Adding these gives 83 days, so the remaining 7 days fall into October, making October 7 the maturity date.

Question 10

Honoring a note receivable indicates that the maker has:

Accepted Answer

Honoring a note receivable means that the maker (borrower) has paid the note in full, fulfilling their obligation to the lender.

Question 11

Failure by a promissory notes' maker to pay the amount due at maturity is known as:

Accepted Answer

Dishonoring a note refers to the failure of the maker (the person who signed the promissory note) to pay the amount due at maturity. Protesting a note refers to the official notice that the note has been dishonored. Closing a note and discounting a note are not relevant to this scenario, and depreciating a note is not a recognized term in this context.

Question 12

Jax Recording Studio purchased $7,800 in electronic components from Music World.Jax signed a 60-day,8% promissory note for $7,800.Music World's journal entry to record the collection on the maturity date is:

Accepted Answer

Since Jax Recording Studio purchased $7,800 in electronic components from Music World and signed a 60-day, 8% promissory note, Music World will receive $7,800 plus 8% interest ($624) on the maturity date.

The journal entry to record the collection on the maturity date would be:

Debit Cash $7,904 (7,800 + 624)
Credit Notes Receivable $7,800 (principal amount)
Credit Interest Revenue $104 (8% of principal for 60 days)

Question 13

Valley Spa purchased $7,800 in plumbing components from Tubman Co.Valley Spa signed a 60-day,10% promissory note for $7,800.If the note is dishonored,but Tubman intends to continue collection efforts,what is the journal entry to record the dishonored note? (Use 360 days a year.)

Accepted Answer

The correct journal entry to record the dishonored note includes recognizing the principal amount of $7,800 and the interest earned over the 60-day period. The interest is calculated as $7,800 * 10% * (60/360) = $130. Therefore, the total amount to be collected is $7,800 + $130 = $7,930. The entry debits Accounts Receivable for the total amount to be collected ($7,930), credits Interest Revenue for the interest earned ($130), and credits Notes Receivable for the principal amount of the note ($7,800).

Question 14

Valley Spa purchased $7,800 in plumbing components from Tubman Co.Valley Spa Studios signed a 60-day,10% promissory note for $7,800.If the note is dishonored,what is the amount due on the note? (Use 360 days a year.)

Accepted Answer

The formula for calculating the dishonored amount of a promissory note is:

Dishonored Amount = Principal x (1 + Interest Rate x Number of Days Past Due / Number of Days in a Year)

In this case, the principal is $7,800, the interest rate is 10%, and the number of days past due is 60.

Therefore, the dishonored amount is:

Dishonored Amount = $7,800 x (1 + 0.10 x 60 / 360) = $7,930

So, the correct answer is C.

Question 15

Craigmont uses the allowance method to account for uncollectible accounts.Its year-end unadjusted trial balance shows Accounts Receivable of $104,500,allowance for doubtful accounts of $665 (credit)and sales of $925,000.If uncollectible accounts are estimated to be 4% of accounts receivable,what is the amount of the bad debts expense adjusting entry?

Accepted Answer

The answer of Craigmont uses the allowance method to account...

Question 16

Jax Recording Studio purchased $7,800 in electronic components from Music World.Jax signed a 60-day,8% promissory note for $7,800.Music World's journal entry to record the sales transaction is:

Accepted Answer

When a promissory note is signed by the buyer, it becomes a legal instrument or "note receivable" that the seller can hold and collect at maturity. Therefore, the journal entry for Music World is to debit "Notes Receivable" for $7,800 and credit "Sales" for $7,800. The interest is not recorded until the note matures or is paid off, so it is not included in this journal entry.

Question 17

Craigmont uses the allowance method to account for uncollectible accounts.Its year-end unadjusted trial balance shows Accounts Receivable of $104,500,allowance for doubtful accounts of $665 (credit)and sales of $925,000.If uncollectible accounts are estimated to be 0.5% of sales,what is the amount of the bad debts expense adjusting entry?

Accepted Answer

The answer of Craigmont uses the allowance method to account...

Question 18

Uniform Supply accepted a $4,800,90-day,10% note from Tracy Janitorial on October 17.What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.)(Use 360 days a year.)

Accepted Answer

Uniform Supply should debit Cash for the full amount of the note plus the interest earned, which is calculated using the formula: Interest = Principal × Rate × Time. Therefore, Interest = $4,800 × 0.10 × (90/360) = $120. The interest revenue should be credited for $20 (which was already recorded as Interest Receivable) and the Notes Receivable account should be credited for the principal amount of $4,800.

Question 19

Jervis accepts all major bank credit cards,including those issued by Northern Bank (NB),which assesses a 3% charge on sales for using its card.On June 28,Jervis had $3,500 in NB Card credit sales.What entry should Jervis make on June 28 to record the deposit?

Accepted Answer

The correct entry accounts for the 3% charge by Northern Bank on the $3,500 sales, which is $105. Thus, Jervis would debit Cash for the net amount received ($3,395) and Credit Card Expense for the fee ($105), while crediting Sales for the total sales amount ($3,500).

Question 20

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day,6% promissory note for the $4,000.Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.)

Accepted Answer

The correct journal entry to record the collection of a note on its maturity date includes debiting Cash for the total amount received (principal plus interest), crediting Notes Receivable for the principal amount, and crediting Interest Revenue for the interest earned. The interest is calculated as $4,000 * 6% * (90/360) = $60, making the total cash received $4,060.

Quiz 7: Reporting and Analyzing Receivables