Question 1

What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?

Accepted Answer

First, we need to calculate the monthly interest rate by dividing the total interest by the number of months: 
$3,000 ÷ 9 months = $333.33 per month.

Then, we can calculate the annual interest rate by multiplying the monthly interest rate by 12: 
$333.33/month x 12 months/year = $3,999.96/year

To find the rate as a percentage, we divide the interest by the principal and multiply by 100: 
($3,999.96/$50,000) x 100 = 8%

Therefore, the annual rate of interest being charged on the 9-month note receivable is 8%.

Question 2

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

Accepted Answer

The answer of Specialty Inc.converts an existing account receivable to...

Question 3

The Allowance for Doubtful Accounts:

Accepted Answer

The answer of The Allowance for Doubtful Accounts:
...

Question 4

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts,then it must mean that:

Accepted Answer

A debit balance in the Allowance for Doubtful Accounts means that more accounts receivable were written off than were estimated in the prior period's adjusting entry. This indicates that the company may need to increase their estimated percentage or improve their collection processes. Choice C is incorrect because if the direct write-off method were used, there would be no balance in the Allowance for Doubtful Accounts. Choice D is irrelevant because it does not address the debit balance in the account.

Question 5

The direct write-off method is not allowed under GAAP because it violates the:

Accepted Answer

The direct write-off method does not match expenses with revenues and therefore violates the expense recognition principle (also known as the matching principle) under GAAP. The expense recognition principle requires that expenses be recognized in the same period as the revenues they help to generate, in order to accurately reflect the true costs of earning those revenues. The direct write-off method simply waits until a specific account becomes uncollectible and writes it off as an expense, without regard to when the revenue was earned or when the expense was incurred. This method is therefore not considered acceptable under GAAP.

Question 6

The direct write-off method for uncollectible accounts:

Accepted Answer

The direct write-off method violates the expense recognition principle because it only recognizes bad debt expense when a specific account is deemed uncollectible and written off, rather than estimating and recognizing an allowance for doubtful accounts based on the overall risk of uncollectibility.

Question 7

In the interest formula,the interest rate is on a(n)_____ basis; therefore,the time variable must reflect how many _____ out of _____ in the interest period.

Accepted Answer

The answer of In the interest formula,the interest rate is...

Question 8

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Accepted Answer

The answer of When interest is calculated for periods shorter...

Question 9

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.Each interest payment will be for:

Accepted Answer

Since interest payments are to be made twice a year, the annual interest rate needs to be divided by 2.
Therefore, the semi-annual interest rate is 6% / 2 = 3%.

The interest payment each 6 months is calculated as:
Interest Payment = Principal x Semi-annual Interest Rate
Interest Payment = $150,000 x 3% = $4,500

Therefore, the best choice is C, which represents the correct interest payment amount.

Question 10

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:

Accepted Answer

The answer of A company lends its supplier $150,000 for...

Question 11

For a note receivable that was created on November 1,2015 and is due for repayment on October 31,2016,what is the time fraction needed to compute interest revenue for the year ended December 31,2015?

Accepted Answer

Since the note was created on November 1, 2015 and the interest revenue needs to be computed for the year ended December 31, 2015, the time fraction would be 2/12 (November and December out of the 12 months in the year).

Question 12

A company lent $10,000 to an employee who signed a 9%,6-month promissory note.The entry made by the company to record this loan to the employee will include a:

Accepted Answer

Since the company lent money to the employee and received a promissory note in return, the correct entry would be to debit Notes Receivable for $10,000. This is because the company now has the right to receive payment from the employee in the future when the note is due. The other options are not correct because the company did not make a sale (choice B) and did not receive an account receivable (choice A). Choice D is also incorrect because it is the opposite entry, which would be made by the employee when making the payment on the note in the future.

Question 13

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was ______ than the amount estimated in the prior period.Thus,bad debt expense will be ______ in the current period than had the unadjusted balance been a credit balance.

Accepted Answer

The answer of Given the unadjusted Allowance for Doubtful Accounts...

Question 14

A company lends $10,000 to an employee who signs a 9%,6-month promissory note.
What is the total amount of interest on this note?

Accepted Answer

First, we need to calculate the interest by using the formula:

interest = principal x rate x time

Where:
- principal = $10,000
- rate = 9% per year / 2 (since it is a 6-month note)
- time = 6 months / 12 months per year

interest = $10,000 x 0.09/2 x 6/12
interest = $10,000 x 0.045
interest = $450

Therefore, the total amount of interest on this note is $450. Option B is the correct answer.

Question 15

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method,then it must mean that the:

Accepted Answer

The answer of If the Allowance for Doubtful Accounts has...

Question 16

On January 1,a company lends a corporate customer $80,000 at 6% interest.The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

Accepted Answer

The answer of On January 1,a company lends a corporate...

Question 17

Company A lends $100,000 to Company B.The interest on the loan is reported as:

Accepted Answer

The answer of Company A lends $100,000 to Company B.The...

Question 18

Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?

Accepted Answer

The answer of Establishing a note receivable by loaning cash...

Question 19

When a company lends cash to a customer who signs a promissory note:

Accepted Answer

The answer of When a company lends cash to a...

Question 20

The entry to record the collection of a previously written-off account needs to be recorded because a customer paid $9,600 after its accounts receivable had been written off.This entry includes a:

Accepted Answer

This entry is recording the collection of a previously written-off account, which means that the allowance for doubtful accounts was already reduced for this account. Therefore, we will credit the allowance account for the amount of the previously written-off account, which is $9,600, to reverse the prior write-off. The entry will be:

Debit: Accounts Receivable $9,600
Credit: Allowance for Doubtful Accounts $9,600

There will be no impact on bad debt expense because the write-off was already expensed in the prior period.

Quiz 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

The Allowance for Doubtful Accounts:

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts,then it must mean that:

The direct write-off method is not allowed under GAAP because it violates the:

The direct write-off method for uncollectible accounts:

In the interest formula,the interest rate is on a(n) ___ basis; therefore,the time variable must reflect how many _ out of ___ in the interest period.

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.Each interest payment will be for:

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:

For a note receivable that was created on November 1,2015 and is due for repayment on October 31,2016,what is the time fraction needed to compute interest revenue for the year ended December 31,2015?

A company lent $10,000 to an employee who signed a 9%,6-month promissory note.The entry made by the company to record this loan to the employee will include a:

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was than the amount estimated in the prior period.Thus,bad debt expense will be in the current period than had the unadjusted balance been a credit balance.

A company lends $10,000 to an employee who signs a 9%,6-month promissory note. What is the total amount of interest on this note?

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method,then it must mean that the:

On January 1,a company lends a corporate customer $80,000 at 6% interest.The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

Company A lends $100,000 to Company B.The interest on the loan is reported as:

Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?

When a company lends cash to a customer who signs a promissory note:

The entry to record the collection of a previously written-off account needs to be recorded because a customer paid $9,600 after its accounts receivable had been written off.This entry includes a:

Quiz 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

The Allowance for Doubtful Accounts:

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts,then it must mean that:

The direct write-off method is not allowed under GAAP because it violates the:

The direct write-off method for uncollectible accounts:

In the interest formula,the interest rate is on a(n) _____ basis; therefore,the time variable must reflect how many _____ out of _____ in the interest period.

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.Each interest payment will be for:

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:

For a note receivable that was created on November 1,2015 and is due for repayment on October 31,2016,what is the time fraction needed to compute interest revenue for the year ended December 31,2015?

A company lent $10,000 to an employee who signed a 9%,6-month promissory note.The entry made by the company to record this loan to the employee will include a:

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was ______ than the amount estimated in the prior period.Thus,bad debt expense will be ______ in the current period than had the unadjusted balance been a credit balance.

A company lends $10,000 to an employee who signs a 9%,6-month promissory note. What is the total amount of interest on this note?

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method,then it must mean that the:

On January 1,a company lends a corporate customer $80,000 at 6% interest.The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

Company A lends $100,000 to Company B.The interest on the loan is reported as:

Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?

When a company lends cash to a customer who signs a promissory note:

The entry to record the collection of a previously written-off account needs to be recorded because a customer paid $9,600 after its accounts receivable had been written off.This entry includes a:

In the interest formula,the interest rate is on a(n) ___ basis; therefore,the time variable must reflect how many _ out of ___ in the interest period.

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was than the amount estimated in the prior period.Thus,bad debt expense will be in the current period than had the unadjusted balance been a credit balance.