Question 1

The accounts receivable turnover measures

Accepted Answer

The accounts receivable turnover measures how frequently during the year the accounts receivable are converted to cash. It is calculated by dividing the net credit sales by the average accounts receivable. This ratio is used to evaluate a company's ability to efficiently collect its outstanding receivables.

Question 2

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

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Question 3

When referring to a note receivable or promissory note

Accepted Answer

A note receivable or promissory note can indeed be used to settle an account receivable, where the debtor acknowledges the debt formally and agrees to pay the creditor under specified conditions.

Question 4

At the end of the current year, Accounts Receivable has a balance of $550,000; Allowance for Doubtful Accounts has a credit balance of $5,500; and sales for the year total $2,500,000. An analysis of receivables estimates uncollectible receivables as $25,000.  
Determine the amount of the adjusting entry for bad debt expense and the adjusted balance of Allowance for Doubtful Accounts, respectively.

Accepted Answer

Bad debt expense = Uncollectible accounts estimate - Unadjusted allowance for doubtful accounts = $25,000 - $5,500 = $19,500
Allowance for doubtful accounts = Unadjusted allowance for doubtful accounts + Bad debt expense = $5,500 + $19,500 = $25,000

Question 5

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

Accepted Answer

The face value of the note is the amount that the debtor promises to pay, and it is the initial value of the receivable. Therefore, when the company receives an interest-bearing note receivable, it should debit Notes Receivable for the face value of the note.

Question 6

Interest on a note can be calculated without knowledge of the

Accepted Answer

Interest on a note is calculated using the rate of interest, term of the note, and face amount. The fair value of the note is not needed for this calculation.

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 = $20,000 × 0.09 × (3 / 12) = $450

Question 8

Given the following information, compute accounts receivable turnover:

Accepted Answer

Accounts Receivable Turnover = Sales / Average Accounts Receivable = $135,000 / ($18,000 + $22,000) = 6.75

Question 9

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 amount stated on its face or the principal amount borrowed. In this case, it is directly given as $7,000, without any need to calculate interest or adjustments for the given period.

Question 10

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

Accepted Answer

Maturity value = Face value + Interest = $40,000 + [$40,000 × 0.09 × (40 / 360)] = $40,400

Question 11

Current assets are usually listed in order

Accepted Answer

Current assets are usually listed in order of liquidity, which means they are listed from most easily convertible to cash to least easily convertible to cash. This allows users of financial statements to see which assets are most readily available to meet short-term obligations.

Question 12

The number of days' sales in receivables

Accepted Answer

The number of days' sales in receivables is an estimate of the length of time the receivables have been outstanding. It measures the average number of days that a company takes to collect its accounts receivable.

Question 13

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

Accepted Answer

The face value of a promissory note is the amount for which it is written, which represents the principal amount borrowed or owed. The maturity value refers to the total amount due at the end of the note’s term, including any interest or fees that may accrue. The realizable value refers to the amount that can be realized from the sale or liquidation of an asset, which is not applicable in this context. The proceeds refer to the actual amount received from the sale or issuance of a financial instrument, which is also not applicable in this context.

Question 14

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

Accepted Answer

If the maker of a promissory note fails to pay the note on the due date, the note is said to be dishonored, meaning the maker has not fulfilled their obligation to pay as agreed.

Question 15

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

Interest = $6,000 × 0.12 × (60 / 360) = $120
Accounts Receivable 6,120
Notes Receivable 6,000
Interest Revenue 120

Question 16

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 an increase in this asset) and credits Accounts Receivable (indicating a decrease in this asset) to reflect the change in the form of the receivable.

Question 17

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

Interest = $40,000 × 0.06 × (1 / 12) = $200
Interest Receivable 200
Interest Revenue 200

Question 18

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

Accepted Answer

The maturity value is the total amount that is due on the promissory note. It includes the original amount of the note plus any interest that has accrued up until the due date. Therefore, the best choice is B, the maturity value. The other options are not correct: A) interest value is not a commonly used term, C) face value typically refers to the original amount of the note without any interest, and D) issuance value is not a commonly used term for promissory notes.

Question 19

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%...

Question 20

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

Maturity value = Face value + Interest = $10,000 + [$10,000 × 0.09 × (60 / 360)] = $10,150

Quiz 8: Receivables