Question 1

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

Accepted Answer

The party borrowing funds on a note is referred to as the maker of the note. Option B refers to a term used in checks, option C refers to the amount stated on the note, and option D refers to the party who will receive the payment on the note.

Question 2

What is the total interest on a 3-month,9% note for $32,000?

Accepted Answer

A) Calculations: ($32,000 × 9%) × 3/12 = $720

Question 3

What is the maturity value of a 3-month,12% note for $20,000?

Accepted Answer

D) Calculations:
($20,000 × 12%) × 3/12 = $600
$20,000 + $600 = $20,600

Question 4

On October 1,2014,Allen Jewelry Company accepted a 4-month,10% note for $2,400 in settlement of an overdue account receivable.If the company accrues interest at year-end only,how much interest revenue should be accrued on December 31,2014?

Accepted Answer

B) Calculations: ($2,400 × 10%) × 3/12 = $60

Question 5

What is the maturity value of a note?

Accepted Answer

The maturity value of a note is the principal amount plus the interest due. This is because the maturity value is the total amount that must be paid back to the lender at the end of the loan term.

Question 6

A note receivable was NOT paid at maturity.Which of the following will be included in the journal entry to record the dishonoring of the note at maturity?

Accepted Answer

When a note receivable is not paid at maturity, the amount is typically transferred back to Accounts Receivable, indicating that the company now recognizes the amount as a receivable again, rather than a note receivable. Cash is not debited because no cash is received, and neither Interest Expense nor Uncollectible Account Expense are debited in the initial journal entry for dishonoring the note.

Question 7

On December 1,2014,Parsons Sales sold machinery to a customer for $2,000.The customer could not pay at the time of sale,but agreed to pay 9 months later,and signed a 9-month note at 12% interest.How much interest revenue was earned during the year 2015?

Accepted Answer

C) Calculations: ($2,000 × 12%) × 8/12 = $160

Question 8

On September 1,2013,Adirondac Marine Supplies made a loan to one of its customers.The customer signed a 6-month note for $1,500 at 10%.How much interest revenue did Adirondac earn over the life of the note?

Accepted Answer

B) Calculations: ($1,500 × 10%) × 6/12 = $75

Question 9

A company issues a 60-day,12% note for $11,000.What is the principal amount?

Accepted Answer

A) Calculations: $11,000 only

Question 10

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

Accepted Answer

A dishonored note is a promissory note that has not been paid on its due date, indicating a breach of contract by the maker of the note.

Question 11

On September 1,2013,Adirondac Marine Supplies made a loan to one of its customers.The customer signed a 6-month note for $1,500 at 10%.How much interest revenue did Adirondac record in the year 2013?

Accepted Answer

D) Calculations: ($1,500 × 10%) × 4/12 = $50

Question 12

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

Accepted Answer

The payee of the note is the party lending funds on a note. The maker of the note is the borrower, the drawer is typically used in reference to checks, and the principal is the amount of money being borrowed.

Question 13

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

Accepted Answer

A three-month note dated November 12 matures exactly three months later, which would be on February 12.

Question 14

On December 1,2014,Parsons Sales sold machinery to a customer for $2,000.The customer could not pay at the time of sale,but agreed to pay 9 months later,and signed a 9-month note at 12% interest.How much interest revenue was earned during the year 2014?

Accepted Answer

C) Calculations: ($2,000 × 12%) × 1/12 =$20

Question 15

On October 2,2014,Allen Jewelry Company accepted a 4-month,10% note for $2,400 in settlement of an overdue account receivable.What is the journal entry to record the acceptance of the note?

Accepted Answer

When a company accepts a note in settlement of an overdue account receivable, it debits Notes Receivable for the note's face value and credits Accounts Receivable, indicating the transfer of the amount due from an account receivable to a note receivable.

Question 16

On September 1,2013,Adirondac Marine Supplies made a loan to one of its customers.The customer signed a 6-month note for $1,500 at 10%.How much interest revenue did Adirondac record in the year 2014?

Accepted Answer

C) Calculations; ($1,500 × 10%) × 2/12 = $25

Question 17

On January 1,Ajax Company accepted a one-year note for $5,000 at 4% from one of its customers.When the note matured on December 31,the customer was unable to pay,and Ajax treated it as a dishonored note.How much interest revenue did Ajax record at December 31?

Accepted Answer

B) Calculations: $5,000 × 4% = $200

Question 18

On September 1,2013,Adirondac Marine Supplies made a loan to one of its customers.The customer signed a 6-month note for $1,500 at 10%.When the note matured on March 1,2014,the customer settled with the company in full.How much cash did Adirondac collect from the customer?

Accepted Answer

A) Calculations: $1,500 + [($1,500 × 10%) × 6/12] = $1,575

Question 19

Which of the following would be included in the entry to record a dishonored note receivable by the payee?

Accepted Answer

When a note receivable is dishonored, the payee debits Accounts Receivable to reflect the amount due from the maker, including any interest, as the note is no longer collectible as a note.

Question 20

On March 1,2014,Bayonne Services made a loan to one of its officers.The officer signed a 6-month note for $4,000 at 8%.Bayonne generally accrues interest at year-end only,so at the time the note matured,Bayonne had not accrued any interest revenue.On August 1 when the note matured,the officer settled in full with the company.How much interest revenue did Bayonne record?

Accepted Answer

C) Calculations: ($4,000 × 8%) × 6/12 = $160

Quiz 8: Receivables