Question 1

The journal entry to record a note received from a customer for the sale of services is:

Accepted Answer

The note received from the customer is a promise to pay at a future date, so it is recorded as a Note Receivable. The sale of services is revenue earned by the company, so it is recorded as Service Revenue. Therefore, debit Note Receivable and credit Service Revenue is the appropriate journal entry.

Question 2

The maturity value of a note is the sum of the principal amount of a note less the interest due at maturity.

Accepted Answer

The answer of The maturity value of a note is...

Question 3

Armistad Inc. wishes to speed up cash flow and contacts Free Cash.com to sell $600,000 in Accounts Receivable, receiving 98% in cash for the receivables. Armistad should debit cash for $588,000, debit Financing Expense for $12,000, and credit Accounts Receivable for $600,000.

Accepted Answer

This is the correct journal entry for selling $600,000 in Accounts Receivable to Free Cash.com at a 98% discount. The debit to cash is for the amount of cash received, the debit to Financing Expense is for the discount or fee paid to Free Cash.com, and the credit to Accounts Receivable is for the amount of receivables sold.

Question 4

The fee charged by a bank credit card company increases the amount of sales revenue a merchant receives in a sales transaction.

Accepted Answer

The fee charged by a bank credit card company is deducted from the sales revenue received by the merchant, therefore it decreases the amount of sales revenue received.

Question 5

Interest rates are always for an annual period unless stated otherwise.

Accepted Answer

Interest rates are typically expressed as an annual percentage rate (APR) and assume that the interest is compounded annually. However, some loans or savings accounts may have a different compounding period, such as monthly or quarterly, which may be specified in the terms and conditions.

Question 6

When a note matures, the payee should record:

Accepted Answer

When a note matures, the payee receives the principal amount along with interest. Therefore, the payee should record interest revenue in their books of accounts. Options A, C, and D are not applicable in this case.

Question 7

There are two parties to a note and:

Accepted Answer

In a note, the creditor is the one who lends money and therefore has a note receivable, while the debtor is the one who borrows money and has a note payable. Therefore, the best choice is A, where the creditor has a note receivable and the debtor has a note payable.

Question 8

The maturity value of a note is always the same as its face value.

Accepted Answer

The maturity value of a note may be greater than or less than its face value, depending on factors such as the interest rate and length of time until maturity.

Question 9

The journal entry to record a note received from a customer to apply on account is:

Accepted Answer

When a note is received from a customer to apply on account, it means the customer is converting their accounts receivable into a note receivable. Therefore, you debit Note Receivable to increase it and credit Accounts Receivable to decrease it.

Question 10

A written promise to pay a specified amount of money at a particular future date is called a(n):

Accepted Answer

A promissory note is a written promise to pay a specified amount of money at a particular future date. A maturity note does not exist as a financial instrument. An account receivable is a debt owed to a company by its customers for goods or services sold on credit. Unearned revenue is a liability that arises when a company receives payment for goods or services that have not yet been provided.

Question 11

Calside Company signed a 15-month, $50,000, 6% note on June 1, 2011. The amount of interest to be accrued on December 31, 2011, is:

Accepted Answer

The answer of Calside Company signed a 15-month, $50,000, 6%...

Question 12

The Last Bank lends money to a customer on a six month note. The bank accrues interest on the note at the end of the year. The journal entry would include:

Accepted Answer

The bank accrues interest by recognizing the interest earned but not yet received. This is done by debiting Interest Receivable and crediting Interest Revenue.

Question 13

When a note matures, the maker should record:

Accepted Answer

When a note matures, the maker should record interest expense as they are the ones paying the interest on the note.

Question 14

Company A has a Note Receivable of $5,000. The note will be collected in installments. $1,000 is due within a year and the remainder is due after a year. The classification of the note on the balance sheet is:

Accepted Answer

The $1,000 due within a year is considered a current asset as it will be collected within the current operating cycle. The remaining $4,000 is considered a long term asset as it will be collected after the current operating cycle. Therefore, the correct classification of the note on the balance sheet would be $1,000 as a current asset and $4,000 as a long term asset.

Question 15

Accounts receivable can be sold to a factor as a means of speeding up cash flows.

Accepted Answer

Accounts receivable financing, also known as factoring, involves selling accounts receivable to a third party (known as a factor) in exchange for immediate cash. This can improve cash flows and provide businesses with quicker access to capital.

Question 16

The balance in Accounts Receivable was $650,000 at the beginning of the year and $350,000 at the end of the year. Credit sales for the year totaled $4,100,000. During the year, $400,000 in customer accounts were written off. How much cash was collected from customers during the period?

Accepted Answer

The cash collected from customers can be calculated using the following formula:
Cash collected = Credit sales - increase in accounts receivable + decrease in accounts written off

Plugging in the values, we get:
Cash collected = $4,100,000 - ($350,000 - $650,000) + $400,000
Cash collected = $4,000,000

Therefore, the answer is B.

Question 17

The Last Bank lends money to a customer on a six month note. The entry to record the issuance of the note is:

Accepted Answer

When a bank lends money, it records a Note Receivable (asset) and credits Cash (asset) to reflect the outflow of cash.

Question 18

A three month, 10% note for $8,000, dated April 15, is received from a customer. The face value of the note is:

Accepted Answer

The face value of a note is the amount written on the note. In this case, the face value is $8,000, which is the amount borrowed by the customer. The interest rate and maturity date are not relevant to determining the face value of the note. Therefore, the correct answer is A) $8,000.

Question 19

A maker and a payee record the same note, respectively, as a:

Accepted Answer

When a maker records a note, it is recorded as a Note Receivable because the maker expects to receive the payment in the future. When a payee records the same note, it is recorded as a Note Payable because the payee owes the payment to the maker in the future. Therefore, the correct choice is C - Note Payable and Note Receivable.

Question 20

When a note matures, the note receivable and the interest receivable are closed out.

Accepted Answer

When a note receivable matures, it means that the debtor has paid back the principal amount along with any interest due. This results in closing out the note receivable and interest receivable accounts.

Quiz 5: Short-Term Investments Receivables