Question 1

The maturity value of a note is the ________.

Accepted Answer

The maturity value of a note is the principal amount plus the interest due at the end of the loan term.

Question 2

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 one where the maker fails to pay the note on the due date. A discounted note is a note that has been sold to a third party at a reduced price. A depreciated note is a term not commonly used in finance, and an amortized note refers to a loan in which the principal is paid down over time.

Question 3

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

Accepted Answer

The dishonor of the note would result in the company's loss of the principal amount ($50,000) plus the interest for one year at 5% ($2,500) for a total debit amount of $52,500. Therefore, the answer is D.

Question 4

Calculate the interest on a 90-day,9% note for $36,000.(Use a 360-day year to compute interest.)

Accepted Answer

The formula to calculate simple interest is given as:
Simple Interest = (Principal × Rate × Time) ÷ 360

Here, Principal = $36,000, Rate = 9%, Time = 90 days and the year is considered as 360 days.

Putting the values in the formula, we get:
Simple Interest = (36,000 × 9% × 90) ÷ 360
Simple Interest = $810

Therefore, the interest on a 90-day, 9% note for $36,000 is $810. The best choice is B.

Question 5

Smart Art is a new establishment.During the first year,there were credit sales of $40,000 and collections of credit sales of $36,000.One account for $650 was written off.The company decided to use the percent-of-sales method to account for bad debts expense,and use a factor of 2% for their year-end adjustment of bad debts expense.Prepare the entry to record the bad debt expense.

Accepted Answer

The answer of Smart Art is a new establishment.During the...

Question 6

On October 1,2015,Ealys Jewelers accepted a 4-month,12% note for $6,000 in settlement of an overdue account receivable.The company closes its accounts at the year end.Calculate and record the accrued interest on the note at December 31,2015.

Accepted Answer

The interest for 3 months (October to December) is calculated as $6,000 * 12% * (3/12) = $180.

Question 7

The entity that signs the promissory note and promises to pay the required amount is the ________.

Accepted Answer

The maker of the note is the entity that signs the promissory note and promises to pay the required amount. This is the basic definition of a promissory note. Therefore, option A is the correct choice. The banker of the note refers to the financial institution that facilitates the transaction. Holder of the note refers to the person who has legal possession of the promissory note. Payee refers to the person or entity to whom the payment is due.

Question 8

Smart Art is a new establishment.During the first year,there were credit sales of $40,000 and collections of credit sales of $36,000.One account for $650 was written off.The company decided to use the aging method to account for bad debts expense.It has calculated an amount of $200 as its estimate of uncollectible amounts at year-end.Prepare the journal entry required to record Bad debts expense at the end of the year.

Accepted Answer

The answer of Smart Art is a new establishment.During the...

Question 9

Interest rates are generally stated on a monthly basis.

Accepted Answer

Interest rates can be stated on different time periods such as daily, weekly, monthly, or annually. However, the specific time period for stating interest rates varies depending on the type of loan or investment.

Question 10

The interest period extends from the original date of the note to the maturity date.

Accepted Answer

This is correct according to standard note terms.

Question 11

The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad debt expense.The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015.Net credit sales for the year amounted to $250,000.Give journal entry to record the bad debts expense at December 31,2015.

Accepted Answer

The answer of The Allowance for Bad Debts account has...

Question 12

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

Accepted Answer

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

Question 13

What is the maturity value of a 3-month,10% note for $40,000?

Accepted Answer

The formula to calculate the maturity value of the note is:

Maturity Value = Principal + (Principal x Rate x Time)

Where,
Principal = $40,000
Rate = 10% per annum
Time = 3/12 years (as it is a 3-month note)

Maturity Value = $40,000 + ($40,000 x 10% x 3/12)
Maturity Value = $40,000 + ($1,000)
Maturity Value = $41,000

Therefore, the maturity value of the note is $41,000. The correct answer is C.

Question 14

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

Accepted Answer

When a note receivable is dishonored, it means that the debtor did not pay back the amount owed on the due date. In this case, the payee (lender) needs to record the dishonored note in their books to reflect the fact that they will not be receiving the payment as expected. The entry for this would include a debit to Accounts Receivable, reducing the amount of money the payee expects to receive from the debtor. This would be the only correct option out of the four presented.

Question 15

On January 16,2015,Whole Circle Inc.had sold goods worth $5,000 to Smith on account.It could not collect cash from the customer,and finally decided to write off the account on December 31,2015.
However,in November 4,2016,Smith approached the company to make payment,and made payment.Journalize the transactions on December 31,2015 and November 4,2016.(Whole Circle uses the allowance method.)

Accepted Answer

The answer of On January 16,2015,Whole Circle Inc.had sold goods...

Question 16

While counting the date of maturity of a note,the date of issue of the note should be omitted.

Accepted Answer

The date of issue of the note is not considered while counting the date of maturity.

Question 17

A company issues a 60-day,12% note for $15,000.What is the principal amount of the note?

Accepted Answer

The principal amount of the note is the amount borrowed, which is $15,000.

Question 18

The entity to whom the promise of future payment is made for a promissory note is the ________.

Accepted Answer

The payee of the note is the entity to whom the promise of future payment is made. The maker is the one making the promise, the endorser is someone who signs the note to transfer ownership, and the banker is not necessarily involved in the creation or ownership of the note.

Question 19

If the maker of the note fails to repay the borrowed amount on the maturity date,the note is said to be dishonored.

Accepted Answer

If the borrower fails to repay the borrowed amount on the maturity date, the note is considered dishonored.

Question 20

The maturity date for a six-month note issued on January 15 would be ________.

Accepted Answer

A six-month note issued on January 15 would mature on July 15, as it is exactly six months from the issue date. Therefore, the correct choice is A.

Quiz 8: Receivables