Question 1

When a company uses the allowance method of accounting for uncollectible receivables,the entry to reinstate a previously written off account would include a

Accepted Answer

If a company uses the allowance method of accounting for uncollectible receivables, a previously written off account can be reinstated by making a journal entry that includes a credit to Allowance for Doubtful Accounts and a debit to Accounts Receivable. The credit to Allowance for Doubtful Accounts increases the balance in the account, which is used to estimate the amount of uncollectible accounts receivable, and the debit to Accounts Receivable reduces the amount of receivables that have been written off. Therefore, the correct choice is D, credit to Allowance for Doubtful Accounts.

Question 2

A $6,000,60-day,12% note recorded on November 21 is not paid by the maker at maturity.The journal entry to recognize this event is

Accepted Answer

The maker of the note did not pay the principal and earned interest of $120 for the 60-day period. Therefore, the journal entry should debit Accounts Receivable for $6,120 (principal plus interest), credit Notes Receivable for $6,000 (unpaid principal), and credit Interest Revenue for $120 (unpaid interest). Option D correctly reflects this. Option A does not account for the accrued interest, Option B does not properly record the unpaid principal, and Option C incorrectly reverses the roles of Notes Receivable and Accounts Receivable.

Question 3

Allowance for Doubtful Accounts is classified as an ________and has a normal ________balance.

Accepted Answer

Allowance for Doubtful Accounts is a contra asset account used to offset the Accounts Receivable account. This means it has a debit balance, which is contrary to the normal credit balance of a regular asset account.

Question 4

The journal entry to record a note received from a customer to replace an account is

Accepted Answer

When a note is received to replace an account receivable, the company debits Notes Receivable (indicating it now has a note receivable instead of an account receivable) and credits Accounts Receivable (indicating the reduction in accounts receivable).

Question 5

Under the allowance method of accounting for uncollectible receivables,writing off an uncollectible account.

Accepted Answer

Writing off an uncollectible account under the allowance method affects only balance sheet accounts. It reduces the accounts receivable and the allowance for doubtful accounts, but it does not impact the income statement because the expense was already recognized when the allowance was initially estimated.

Question 6

The amount for which a promissory note is written is called the

Accepted Answer

The amount for which a promissory note is written is called its face value. This is the principal amount that the borrower promises to pay back to the lender along with any interest or fees agreed upon.

Question 7

On October 1,Black Company receives a 9% interest-bearing note from Reese Company to settle a $20,000 account receivable.The note is due in six months.At December 31,Black should record interest revenue of

Accepted Answer

Interest revenue is calculated based on the principal amount, the annual interest rate, and the time period the note has been outstanding. Since the note is for 6 months at a 9% annual rate, for 3 months (October 1 to December 31), the interest revenue is $20,000 * 9% * (3/12) = $450.

Question 8

The amount of the promissory note plus the interest earned on the due date is called the

Accepted Answer

The maturity value of a promissory note refers to the total amount that the borrower is obligated to pay at the due date, including the principal amount and any interest that has accrued. This term is often used in the context of investments and loans to describe the total amount that will be paid out at the end of a specific period.

Question 9

Paper Company receives a $6,000,3-month,6% promissory note from Dame Company in settlement of an open accounts receivable.What entry will Paper Company make upon receiving the note?

Accepted Answer

The answer of Paper Company receives a $6,000,3-month,6% promissory note...

Question 10

When a company receives an interest-bearing note receivable,it will

Accepted Answer

When a company receives an interest-bearing note receivable, it should debit Notes Receivable for the face value of the note. This is because the face value represents the amount that the debtor owes to the company, which includes the principal amount and any accrued interest. The maturity value, on the other hand, represents the sum of the face value and any interest that will accrue until the note matures, and is not relevant until the note actually matures. Therefore, the correct accounting entry is to debit Notes Receivable for the face value of the note to reflect the initial amount due from the debtor.

Question 11

A 60-day,12% note for $7,000,dated April 15,is received from a customer on account.The face value of the note is

Accepted Answer

The face value of a note refers to the principal amount or the original amount before any interest is added. In this case, the original amount is $7,000, which is the face value of the note. Interest calculations are separate and would be added to the face value for the total amount due at maturity.

Question 12

When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables,a major difference is that the direct write-off method

Accepted Answer

The answer of When comparing the direct write-off method and...

Question 13

Harper Company lends Hewell Company $40,000 on March 1,accepting a four-month,6% interest note.Harper Company prepares financial statements on March 31.What adjusting entry should be made before the financial statements can be prepared?

Accepted Answer

The answer of Harper Company lends Hewell Company $40,000 on...

Question 14

When a company uses the allowance method of accounting for uncollectible receivables,which entry would not be found in the general journal?

Accepted Answer

The answer of When a company uses the allowance method...

Question 15

The maturity value of a $40,000,9%,40-day note receivable dated July 3 is

Accepted Answer

The formula to calculate the maturity value of a note receivable is MV = P + I, where MV is the maturity value, P is the principal, and I is the interest.

Using this formula, we have:

P = $40,000
I = $40,000 x 9% x 40/360 = $360
MV = $40,000 + $360 = $40,360

Therefore, the answer is B) $40,400.

Question 16

A 60-day,9% note for $10,000,dated May 1,is received from a customer on account.The maturity value of the note is

Accepted Answer

To calculate the maturity value of a note, we need to add the interest to the principal.

For this note: 
Principal = $10,000 
Interest rate = 9% 
Time = 60 days

To calculate the interest, we can use the simple interest formula: 
Interest = Principal x Rate x Time 
Interest = $10,000 x 0.09 x (60/360) 
Interest = $150

Now we can calculate the maturity value: 
Maturity value = Principal + Interest 
Maturity value = $10,000 + $150 
Maturity value = $10,150

Therefore, the correct answer is B.

Question 17

When referring to a note receivable or promissory note

Accepted Answer

A note receivable or promissory note can indeed be used to settle an accounts receivable, where the debtor issues a promissory note to the creditor, promising to pay the amount owed at a future date under specified terms. This formalizes the debt and can provide the creditor with a more secure claim.

Question 18

On August 1,Kim Company accepted a 90-day note receivable as payment for services provided to Hsu Company.The terms of the note were $20,000 face value and 6% interest.On October 30,the journal entry to record the collection of the note should include a

Accepted Answer

The 90-day note receivable was accepted on August 1st, which means it is due on October 30th. To record the collection of the note on October 30th, the following journal entry is required:

Debit: Cash for $20,300 (face value plus interest)
Credit: Notes Receivable for $20,000
Credit: Interest Revenue for $300 (6% x $20,000 x 90/360)

Therefore, the correct choice is C, which is the credit to Interest Revenue for $300.

Question 19

If the maker of a promissory note fails to pay the note on the due date,the note is said to be

Accepted Answer

When the maker of a promissory note fails to pay the note on the due date, the note is said to be dishonored. This means that the maker has breached the agreement and failed to honor their obligation to repay the amount due on the note.

Question 20

Interest on a note can be calculated without knowledge of the

Accepted Answer

The answer of Interest on a note can be calculated...

Quiz 8: Receivables