Question 1

Which of the following is the party lending funds on a bill?

Accepted Answer

The drawer of the bill is the party that lends funds by drawing the bill, essentially the creditor who expects to be paid by the acceptor.

Question 2

On 1 January,Ajax Company accepted a one-year bill for $50,000 at 5% from one of its customers.When the bill matured on 31 December,the customer was unable to pay and the company recorded the dishonour.The amount of the debit in the dishonour entry would be:

Accepted Answer

The dishonour of the bill means that the customer has failed to pay the bill on its due date. Therefore, the full value of the bill needs to be recorded as a debit in the dishonour entry to reflect that Ajax Company will not receive any payments from the customer. The bill amount is $50,000, and the debit in the dishonour entry should also be $50,000. However, since the bill was issued at 5%, there would be interest accrued on the bill until its maturity date. The interest accrued can be calculated as follows:

Interest = Principal x Rate x Time
= $50,000 x 5% x 1 year
= $2,500

Therefore, the total amount of the debit in the dishonour entry would be the bill amount plus the interest accrued, which is $50,000 + $2,500 = $52,500. Option D is the correct answer.

Question 3

A bill is dishonoured when the debtor of the bill fails to pay the bill at maturity.

Accepted Answer

A bill is considered dishonoured when the debtor of the bill fails to make payment at the maturity date. This means that the bill has not been paid on the due date specified in the bill, which can result in penalties or legal action.

Question 4

On 1 October 2016,Android Ltd made a loan to one of its customers.The customer signed a 4-month bill for $130,000 at 13%.How much interest revenue did the company record in the year 2017 for this bill?

Accepted Answer

The interest for the 4-month period is calculated as $130,000 * 13% * (4/12) = $5,633. However, since the loan was made on 1 October 2016, only the interest for January 2017 (1 month) is recorded in 2017, which is $130,000 * 13% * (1/12) = $1,408.

Question 5

On 1 October 2017,Android Ltd made a loan to one of its customers.The customer signed a 9-month bill for $100,000 at 14%.Calculate the total interest earned on the bill.

Accepted Answer

Using the simple interest formula, we can calculate the interest earned on the bill:

I = Prt

Where I is the interest earned, P is the principal amount (which is $100,000 in this case), r is the interest rate (14/100 = 0.14), and t is the time period (9/12 = 0.75).

Plugging in the values, we get:

I = 100,000 x 0.14 x 0.75 = $10,500

Therefore, the total interest earned on the bill is $10,500. Option C is the correct answer.

Question 6

What is the maturity value of a 3-month,12% bill for $50,000?

Accepted Answer

The maturity value of the bill can be calculated using the following formula:

Maturity value = Face value * (1 + (rate * time))

Here, the face value (or principal) of the bill is $50,000, the rate of interest is 12% per annum, and the time period is 3 months (or 0.25 years).

Substituting these values in the formula, we get:

Maturity value = $50,000 * (1 + (0.12 * 0.25)) = $51,500

Therefore, the correct answer is (A) $51,500.

Question 7

On which of the following dates does a three-month bill dated 12 November mature?

Accepted Answer

A three-month bill from 12 November would mature on 12 February.

Question 8

Interest revenue must be reported for a bill receivable that is outstanding at the end of the accounting period.

Accepted Answer

According to accounting principles, interest revenue must be recognized for any outstanding bills receivable at the end of the accounting period, even if the payment is not received until a later date. This is in accordance with the accrual basis of accounting, which matches revenue earned with the period in which it is earned, not necessarily the period in which cash is exchanged.

Question 9

On 1 October 2016,Android Ltd made a loan to one of its customers.The customer signed a 4-month bill for $140,000 at 15%.Calculate the maturity value of the bill.

Accepted Answer

The answer of On 1 October 2016,Android Ltd made a...

Question 10

Which of the following is the party borrowing funds on a bill?

Accepted Answer

The acceptor of the bill is the party borrowing funds on a bill because they are the one who agrees to pay the bill at maturity.

Question 11

What is the maturity value of a bill?

Accepted Answer

The maturity value of a bill is the total amount due at the end of its term, which includes the principal amount borrowed plus the accrued interest. Therefore, the correct answer is C, the principal amount plus interest due.

Question 12

Assets are listed on the balance sheet in order of liquidity.Which of the following items reflects the normal order of liquidity?

Accepted Answer

Assets are listed on the balance sheet in order of liquidity, which means how quickly they can be converted into cash. The correct order is: Cash, Accounts Receivable, Inventory, Bills Receivable.

Question 13

A company issues a 100-day,14% bill for $17,000.What is the principal amount of the bill?

Accepted Answer

The principal amount of the bill is the amount for which the bill is issued, which is $17,000.

Question 14

On 1 October 2016,Android Ltd made a loan to one of its customers.The customer signed a 4-month note for $100,000 at 13%.How much interest revenue did the company record in the year 2016?

Accepted Answer

The interest revenue for the loan can be calculated using the formula:

Interest = Principal x Rate x Time

Where, 
Principal = $100,000 
Rate = 13% per annum 
Time = 3/12 years (since the loan was made on 1 October and the year ends on 31 December)

Substituting the values:

Interest = $100,000 x 13/100 x 3/12 
= $3,250

Therefore, the interest revenue recorded in the year 2016 was $3,250. 
Hence, the best choice is C.

Question 15

On 1 October 2016,Ealys Jewellers accepted a 4-month,10% bill for $8000 in settlement of an overdue account receivable.The company closes its accounts at the year-end.Calculate and record the accrued interest on the bill at 31 December 2016.

Accepted Answer

The interest for 3 months (October to December) is calculated as $8000 * 10% * (3/12) = $200.

Question 16

On 1 December 2016,Parsons Ltd sold machinery to a customer for $20,000.The customer could not pay at the time of sale but agreed to pay 9 months later and signed a 9-month bill at 9% interest.How much interest revenue was earned for the entire term of the bill?

Accepted Answer

The interest revenue earned for the entire term of the bill can be calculated using the simple interest formula,
Interest = (Principal x Rate x Time)/100
Here, the principal is $20,000, the rate is 9% per annum (for 9 months, it will be 9/12 x 9 = 6.75%), and the time is 9/12 years. Plugging in these values,
Interest = ($20,000 x 6.75 x 9/12)/100 = $1350.
Therefore, the correct answer is A) $1350.

Question 17

The maturity value of a bill is the sum of the principal plus interest due at maturity.

Accepted Answer

The maturity value of a bill is indeed the sum of the principal amount borrowed plus the interest due at maturity.

Question 18

On 1 December 2016,Parsons Ltd sold machinery to a customer for $25,000.The customer could not pay at the time of sale but agreed to pay 11 months later and signed a 11-month bill at 8% interest.What was the total amount of cash collected by Parsons on the maturity of the bill?

Accepted Answer

The answer of On 1 December 2016,Parsons Ltd sold machinery...

Question 19

Which of the following exists if the maker of a promissory bill fails to pay the bill on the due date?

Accepted Answer

The answer of Which of the following exists if the...

Question 20

A six-month bill receivable for $6000 at 11%,dated 1 September 2017,has accrued interest revenue of ________ on 31 December 2017.

Accepted Answer

The answer of A six-month bill receivable for $6000 at...

Quiz 9: Receivables