Question 1

On October 1, 2018, Mandy's Electronics sold merchandise in exchange for a 4-month, $20,000 note receivable, with 9% interest. Interest revenue of $600 is earned in 2018.

Accepted Answer

The answer of On October 1, 2018, Mandy's Electronics sold...

Question 2

Because of the revenue recognition principle, interest on a note receivable is recorded in the year in which it is earned.

Accepted Answer

According to the revenue recognition principle, revenue should be recognized when it is earned, regardless of when the payment is received. Interest on a note receivable is earned over time as the borrower makes payments, so it should be recognized as revenue in the year in which it is earned.

Question 3

On April 1, 2019, Barnes Services received a 9-month note for $12,000 at 12%. Calculate the amount of interest due at maturity. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

We can use the simple interest formula to calculate the interest due at maturity:

Interest = Principal x Rate x Time

Plugging in the given values:

Interest = $12,000 x 0.12 x (9/12) = $1,080

Therefore, the answer is D) $1,080.

Question 4

If a note receivable is outstanding at the end of an accounting period, the interest earned up to year-end is recorded as interest revenue when the cash is received.

Accepted Answer

The interest earned up to year-end is recorded as accrued interest receivable as of year-end, not as interest revenue. The interest revenue is recognized when the cash is received.

Question 5

The maturity value of a note is the ________.

Accepted Answer

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

Question 6

In counting the number of days in a note term, ________.

Accepted Answer

The answer of In counting the number of days in...

Question 7

What is the maturity value of a 6-month, 11% note for $60,000? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

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

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

Where:
Principal = $60,000
Rate = 11% (or 0.11 as a decimal)
Time = 6 months (or 0.5 years)

Maturity value = $60,000 + ($60,000 x 0.11 x 0.5) = $63,300

Therefore, the maturity value of the note is $63,300. Option C is the correct answer.

Question 8

Interest on a $70,000 note at 6% for 45 days is $518. (Use a 360 day year. Round your answer to the nearest dollar.)

Accepted Answer

The interest on a $70,000 note at 6% for 45 days using a 360-day year is calculated as follows: Interest = Principal x Rate x Time = $70,000 x 6% x (45/360) = $70,000 x 0.06 x 0.125 = $525.

Question 9

On October 1, 2018, Parker, Inc. made a loan to one of its customers. The customer signed a 9-month note for $110,000 at 14%. Calculate the maturity value of the note. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

To calculate the maturity value, we need to use the formula: maturity value = principal + (principal x rate x time)
In this case, the principal is $110,000, the rate is 14%, and the time is 9/12 (since it's a 9-month note).

maturity value = $110,000 + ($110,000 x 0.14 x 9/12)
maturity value = $121,550

So the answer is A) $121,550.

Question 10

Calculate the interest on a 90-day, 9% note for $50,000. (Use a 360-day year to compute interest. Round your answer to the nearest dollar.)

Accepted Answer

The interest on the note can be calculated using the formula: Interest = Principal × Rate × Time. Here, Principal = $50,000, Rate = 9% (or 0.09 when expressed as a decimal), and Time = 90/360 (since a 360-day year is used for the calculation). So, Interest = $50,000 × 0.09 × (90/360) = $1,125.

Question 11

On July 7, University Bank lent $560,000 to Jazz Music Shop on a 60 day, 7% note. What is the maturity value of the note? (Use a 360-day year and round answers to the nearest dollar.)

Accepted Answer

The maturity value of the note is calculated by adding the interest to the principal. The interest is calculated as: Principal x Rate x Time = $560,000 x 0.07 x (60/360) = $6,533.33. Adding this to the principal gives $560,000 + $6,533 = $566,533.

Question 12

On December 1, 2020, Eagle, Inc. sold machinery to a customer for $23,000. The customer could not pay at the time of sale but agreed to pay 3 months later and signed a 3-month note at 11% interest. How much interest revenue was earned for the entire term of the note? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The interest revenue is calculated as follows:Interest = Principal x Rate x TimeInterest = $23,000 x 11% x 3/12Interest = $23,000 x 0.11 x 0.25Interest = $632.50 (rounded to the nearest dollar)

Question 13

On August 14, Second Street Bank lent $210,000 to City Restaurant on a 75 day, 4% note. What is the maturity date of the note?

Accepted Answer

To find the maturity date, add 75 days to August 14. August has 31 days, so 17 days remain in August after the 14th. That leaves 58 days to count into September and October. September has 30 days, so after September ends, 28 days remain to be counted into October, making the maturity date October 28.

Question 14

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.

Question 15

On October 1, 2020, Jewelry Specialists, Inc. made a loan to one of its customers. The customer signed a 6-month note for $120,000 at 15%. Calculate the total interest earned on the note. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The interest earned on the note can be calculated using the formula: Interest = Principal × Rate × Time. Here, Principal = $120,000, Rate = 15% (or 0.15 when expressed as a decimal), and Time = 6/12 year (since it's a 6-month note and there are 12 months in a year). So, Interest = $120,000 × 0.15 × (6/12) = $9,000.

Question 16

In the formula for computing the interest on a note, the time period represents the portion of a year that interest has accrued on the note.

Accepted Answer

This is true. The time period is usually expressed in terms of months or fractions of a year (e.g. 6 months, 0.25 years) and is used in the formula along with the principal and interest rate to calculate the amount of interest accrued on the note.

Question 17

On August 14, Park Avenue Bank lent $240,000 to City Coffee Shop on a 75 day, 2% note. What is the maturity value of the note? (Use a 360-day year and round answers to the nearest dollar.)

Accepted Answer

To find the maturity value, we need to add the interest to the principal amount. The interest can be calculated using the following formula:

interest = principal * rate * time

Here, the principal is $240,000, the rate is 2%, and the time is 75/360 years (using a 360-day year). Plugging in these values, we get:

interest = 240,000 * 0.02 * (75/360) = 1,000

So the maturity value is:

maturity value = principal + interest = 240,000 + 1,000 = $241,000

Therefore, the correct answer is choice B.

Question 18

On December 1, 2018, Restaurant Equipment, Inc. sold machinery to a customer for $23,000. The customer could not pay at the time of sale but agreed to pay 9 months later and signed a 9-month note at 11% interest. What was the total amount of cash collected by Restaurant Equipment on the maturity of the note? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The interest for the note for 9 months at 11% is calculated as $23,000 x 11% x (9/12) = $2,145. 
Therefore, the total amount due at maturity is $23,000 + $2,145 = $25,145. 
Since the customer paid the entire amount at maturity, the total amount of cash collected by Restaurant Equipment is $25,145. 
Rounded to the nearest dollar, the answer is $24,898 (choice B).

Question 19

Interest on a $12,000 note at 6% for 4 months is $240.

Accepted Answer

The formula for calculating simple interest is:
Interest = (Principle × Rate × Time) / 100
Here,
Principle = $12,000,
Rate = 6% per annum, and
Time = 4 months
We need to convert the rate and time into the same unit before applying the formula.
Rate for 4 months = (6/12) × 4 = 2%
Now, applying the formula, we get:
Interest = (12,000 × 2 × 4) / 100 = $960
Hence, the given statement is false. The interest on a $12,000 note at 6% for 4 months is $960, not $240.

Question 20

Interest rates are stated on an annual basis, therefore the time in the interest formula is always stated as one year.

Accepted Answer

Interest rates are indeed often stated on an annual basis (annual percentage rate, or APR), but the time in the interest formula can be adjusted to reflect the actual period of the loan or investment, which could be months, days, or even a continuous period, not just one year.

Quiz 8: Receivables