Question 1

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

Accepted Answer

The entry includes a debit to Notes Receivable and a credit to Cash for $2,000.No interest is recorded on the day the note is established.Interest is earned over time.

Question 2

The entry to record the collection of a previously written-off account needs to be recorded because a customer paid $9,600 after its accounts receivable had been written off.This entry includes a:

Accepted Answer

Collection of a previously written off account is called a recovery and it is accounted for in two parts.First,put the receivable back on the books by recording the opposite of the write-off.Second,record the collection of the account.The entries include (1)a debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts for $9,600 and (2)a debit to Cash and a credit to Accounts Receivable for $9,600.

Question 3

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was ________ than the amount estimated in the prior period.Thus,bad debt expense will be ________ in the current period than had the unadjusted balance been a credit balance.

Accepted Answer

Although the Allowance for Doubtful Accounts normally has a credit balance,it may have a debit balance before it is adjusted.This happens when a company has recorded write-offs that exceed previous estimates of uncollectible accounts.

Question 4

What is the annual rate of interest being charged on a 9-month note receivable of $150,000 if the total interest is $9,000?

Accepted Answer

Interest = Principal × Interest Rate × Time
Interest Rate = Interest ÷ (Principal × Time)
= $9,000 ÷ ($150,000 × 9/12)= 0.08 or 8%

Question 5

For a note receivable that was created on November 1,2018 and is due for repayment on October 31,2019,what is the time fraction needed to compute interest revenue for the year ended December 31,2018?

Accepted Answer

Recall that: Interest = Principal × Interest Rate × Time.For the computation of interest earned through December 31,the time component of this equation will be 2/12 (or the two months from November 1 through December 31 divided by the twelve months covered by the interest rate).

Question 6

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method,then it must mean that the:

Accepted Answer

Although the Allowance for Doubtful Accounts normally has a credit balance,it may have a debit balance before it is adjusted.This happens when a company has recorded write-offs that exceed previous estimates of uncollectible accounts.

Question 7

Maple Broadcasting Co.lends $20,000 to an employee who signs a 9%,6-month promissory note.What is the total amount of interest on this note?

Accepted Answer

Interest = Principal × Interest rate × Time
= $20,000 × .09 × 6/12 = $900

Question 8

On January 1,Portillo,Inc.lends a corporate customer $240,000 at 6% interest.The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

Accepted Answer

Interest = Principal × Interest Rate × Time
= $240,000 × 0.06 × 3/12 (January through March)= $3,600

Question 9

Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?

Accepted Answer

Establishing a note receivable for a loan increases Note Receivable,an asset account,and decreases Cash,another asset account by the same amount;as a result,it has no effect on total assets,liabilities,or stockholder's equity.

Question 10

Knoll Manufacturing lends its supplier $300,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.Each interest payment will be for:

Accepted Answer

Interest payments are made twice per year;six months are covered by each interest payment.
Interest = Principal × Interest Rate × Time
= $300,000 × 0.06 × 6/12 = $9,000

Question 11

The direct write-off method for uncollectible accounts:

Accepted Answer

GAAP does not allow the use of the direct write-off method because it violates the expense recognition principle.

Question 12

The Allowance for Doubtful Accounts:

Accepted Answer

When the direct write-off method is used,the company records Bad Debt Expense only when a company writes off specific accounts.As a result,since an estimate of uncollectible accounts is not recorded,a company using the direct write-off method would not have an Allowance for Doubtful Accounts account.

Question 13

In the interest formula,the interest rate is on a(n)________ basis;therefore,the time variable must reflect how many ________ out of ________ in the interest period.

Accepted Answer

Because interest rates are always stated as an annual percentage even if the note is for less than a year,the time period is the portion of a year for which interest is calculated.Ask yourself how many months out of 12 or how many days out of 365 the interest period covers.

Question 14

Company A lends $100,000 to Company B.The interest on the loan is reported as:

Accepted Answer

Company A,the lender,earns the interest (Interest Revenue)and Company B,the borrower,incurs the cost (Interest Expense).

Question 15

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:

Accepted Answer

The entry includes a debit to Notes Receivable and a credit to Cash for $150,000.No interest is recorded on the day the note is established.Interest is earned over time.

Question 16

When a company lends cash to a customer who signs a promissory note:

Accepted Answer

When a company makes a loan,Cash decreases and Notes Receivable increases.One asset is being exchanged for another;there is no change in total assets.No interest is recorded on the day the note is established.Interest is earned over time.As such,net income is not affected.

Question 17

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts,then it must mean that:

Accepted Answer

Although the Allowance for Doubtful Accounts normally has a credit balance,it may have a debit balance before it is adjusted.This happens when a company has recorded write-offs that exceed previous estimates of uncollectible accounts.

Question 18

The direct write-off method is not allowed under GAAP because it violates the:

Accepted Answer

GAAP does not allow the use of the direct write-off method because it violates the expense recognition principle.

Question 19

A company lent $10,000 to an employee who signed a 9%,6-month promissory note.The entry made by the company to record this loan to the employee will include a:

Accepted Answer

The entry includes a debit to Notes Receivable and a credit to Cash for $10,000.

Question 20

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Accepted Answer

Because interest rates are always stated as an annual percentage even if the note is for less than a year,the time period is the portion of a year for which interest is calculated.Ask yourself how many months out of 12 or how many days out of 365 the interest period covers.As such,in the interest equation,T equals the number of months ÷ 12.

Quiz 8: Receivables,Bad Debt Expense,and Interest Revenue

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

The entry to record the collection of a previously written-off account needs to be recorded because a customer paid $9,600 after its accounts receivable had been written off.This entry includes a:

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was than the amount estimated in the prior period.Thus,bad debt expense will be in the current period than had the unadjusted balance been a credit balance.

What is the annual rate of interest being charged on a 9-month note receivable of $150,000 if the total interest is $9,000?

For a note receivable that was created on November 1,2018 and is due for repayment on October 31,2019,what is the time fraction needed to compute interest revenue for the year ended December 31,2018?

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method,then it must mean that the:

Maple Broadcasting Co.lends $20,000 to an employee who signs a 9%,6-month promissory note.What is the total amount of interest on this note?

On January 1,Portillo,Inc.lends a corporate customer $240,000 at 6% interest.The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?

Knoll Manufacturing lends its supplier $300,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.Each interest payment will be for:

The direct write-off method for uncollectible accounts:

The Allowance for Doubtful Accounts:

In the interest formula,the interest rate is on a(n) basis;therefore,the time variable must reflect how many out of in the interest period.

Company A lends $100,000 to Company B.The interest on the loan is reported as:

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:

When a company lends cash to a customer who signs a promissory note:

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts,then it must mean that:

The direct write-off method is not allowed under GAAP because it violates the:

A company lent $10,000 to an employee who signed a 9%,6-month promissory note.The entry made by the company to record this loan to the employee will include a:

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Quiz 8: Receivables,Bad Debt Expense,and Interest Revenue

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

The entry to record the collection of a previously written-off account needs to be recorded because a customer paid $9,600 after its accounts receivable had been written off.This entry includes a:

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was ________ than the amount estimated in the prior period.Thus,bad debt expense will be ________ in the current period than had the unadjusted balance been a credit balance.

What is the annual rate of interest being charged on a 9-month note receivable of $150,000 if the total interest is $9,000?

For a note receivable that was created on November 1,2018 and is due for repayment on October 31,2019,what is the time fraction needed to compute interest revenue for the year ended December 31,2018?

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method,then it must mean that the:

Maple Broadcasting Co.lends $20,000 to an employee who signs a 9%,6-month promissory note.What is the total amount of interest on this note?

On January 1,Portillo,Inc.lends a corporate customer $240,000 at 6% interest.The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?

Knoll Manufacturing lends its supplier $300,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.Each interest payment will be for:

The direct write-off method for uncollectible accounts:

The Allowance for Doubtful Accounts:

In the interest formula,the interest rate is on a(n) ________ basis;therefore,the time variable must reflect how many ________ out of ________ in the interest period.

Company A lends $100,000 to Company B.The interest on the loan is reported as:

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:

When a company lends cash to a customer who signs a promissory note:

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts,then it must mean that:

The direct write-off method is not allowed under GAAP because it violates the:

A company lent $10,000 to an employee who signed a 9%,6-month promissory note.The entry made by the company to record this loan to the employee will include a:

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was than the amount estimated in the prior period.Thus,bad debt expense will be in the current period than had the unadjusted balance been a credit balance.

In the interest formula,the interest rate is on a(n) basis;therefore,the time variable must reflect how many out of in the interest period.