Question 1

Use the following information for questions: $\begin{array}{l}\begin{array}{lrr}&2011&2010\
\text { Current Assets }\
\text { Cash } & \$ 25,000 & \$ 26,250 \
\text { Accounts Receivable } & 247,500 & 299,000 \
\text { Inventory } & 1,950,000 & 1,725,000 \
\text { Prepaid expenses } & 4,000 & 4,000\\text { Total Current Assets } & \$ 2,226,500&\$ 2,054,250\\
\text { Current Liabilities } & \$ 1,400,000 & \$ 1,225,000 \
\text { Net Credit Sales } & \$ 2,400,000 & \$ 2,255,000
\end{array}
\end{array}$ Melrose Enterprise's credit terms are net 30 days.
-Melrose Enterprise Ltd's 2011 current ratio is:
A)1.59:1
B)1.39:1
C)1.00:1
D)0.19:1

Accepted Answer

The current ratio is calculated by dividing total current assets by total current liabilities. For 2011, this is $\$2,226,500 / \$1,400,000 = 1.59:1$.

Question 2

Use the following information for questions: $\begin{array}{l}\begin{array}{lrr}&2011&2010\
\text { Current Assets }\
\text { Cash } & \$ 25,000 & \$ 26,250 \
\text { Accounts Receivable } & 247,500 & 299,000 \
\text { Inventory } & 1,950,000 & 1,725,000 \
\text { Prepaid expenses } & 4,000 & 4,000\\text { Total Current Assets } & \$ 2,226,500&\$ 2,054,250\\
\text { Current Liabilities } & \$ 1,400,000 & \$ 1,225,000 \
\text { Net Credit Sales } & \$ 2,400,000 & \$ 2,255,000
\end{array}
\end{array}$ Melrose Enterprise's credit terms are net 30 days.
-Melrose Enterprise's quick ratio for 2011 is:
A)1.59:1
B)1.39:1
C)0.88:1
D)0.19:1

Accepted Answer

The answer of Use the following information for questions: \(\begin{array}{l}\begin{array}{lrr}&2011&2010\
\text...

Question 3

All of the following are characteristics of notes receivable except, notes receivable:
A)are usually evidenced by a more formal agreement called a promissory note.
B)generally require the maker to pay interest on the receivable.
C)are generally for a longer period than a regular accounts receivable.
D)are used by most businesses for very large amounts and are therefore almost always shown separately on the financial statements.

Accepted Answer

Notes receivable are not necessarily used for very large amounts and may be used for smaller amounts as well. They are also not always shown separately on the financial statements, as they may be included with other receivables. The other characteristics listed (A, B, and C) are generally true for notes receivable.

Question 4

Intercity Industries accepted a one-year, non-interest-bearing note with a $21,000 face value in exchange for goods with a sale price of $19,534.What was the implied interest rate on the note?
A)There is no implied interest rate.
B)7.8%
C)7.5%
D)6.9 %

Accepted Answer

The implied interest rate can be calculated using the formula: (Face Value - Sale Price) / Sale Price. Here, it is ($21,000 - $19,534) / $19,534 = 0.075 or 7.5%.

Question 5

Gomez Agencies accepts an 20-month, 6%, $7,500 note receivable from a client in settlement of an outstanding accounts receivable on November 1, 2009.The client pays off the note on June 30, 2011.Gomez has a December 31 year-end.Gomez should recognize interest revenue in 2011 of:
A)$150
B)$225
C)$450
D)$750

Accepted Answer

To calculate the interest revenue that should be recognized in 2011, we need to first determine the total amount of interest for the entire term of the note.

Interest = Principal x Rate x Time

Principal = $7,500 
Rate = 6% 
Time = 20/12 = 1.67 years

Interest = $7,500 x 0.06 x 1.67 = $750

Since the note was paid off on June 30, 2011, Gomez is entitled to six months of interest revenue for 2011.

Interest revenue for 2011 = $750 x (6/20) = $225

Therefore, the best choice is B, $225.

Question 6

Use the following information for questions: $$\begin{array} { l c c } 
\text { Days outstanding } & \text { Balance } & \text { Estimated percentage uncollectible } \
0 - 30 \text { days } & \$ 350,000 & 1 \% \
31 - 60 \text { days } & 275,000 & 2 \% \
61 - 90 \text { days } & 67,500 & 5 \% \
 \text { over } 90 \text { days } & 37,500 & 25 \%
\end{array}$$ The balance in their allowance for doubtful accounts before year-end adjustments is a $2,000 credit.
-The balance in the allowance for doubtful accounts after year-end adjustments will be:
A)$2,000.
B)$23,750.
C)$21,750.
D)$19,750.

Accepted Answer

The total estimated uncollectible amount is calculated as follows: (1% of $350,000) + (2% of $275,000) + (5% of $67,500) + (25% of $37,500) = $3,500 + $5,500 + $3,375 + $9,375 = $21,750. Since there is already a $2,000 credit balance, the adjustment needed is $21,750 - $2,000 = $19,750. Thus, the balance after adjustment is $21,750.

Question 7

A note in which the interest is implicit is called a:
A)secured note.
B)negotiable note.
C)factored note.
D)discounted note.

Accepted Answer

A discounted note implies the interest has been deducted upfront, meaning there is no explicit mention of interest in the note.

Quiz 6: Cash, Temporary Investments, and Accounts Notes Receivable

All of the following are characteristics of notes receivable except, notes receivable:

Intercity Industries accepted a one-year, non-interest-bearing note with a $21,000 face value in exchange for goods with a sale price of $19,534.What was the implied interest rate on the note?

Gomez Agencies accepts an 20-month, 6%, $7,500 note receivable from a client in settlement of an outstanding accounts receivable on November 1, 2009.The client pays off the note on June 30, 2011.Gomez has a December 31 year-end.Gomez should recognize interest revenue in 2011 of:

A note in which the interest is implicit is called a: