Question 1

Companies should not sell merchandise in exchange for notes receivable.

Accepted Answer

Companies can sell merchandise in exchange for notes receivable as it is a common business practice to sell on credit. Notes receivable are formal agreements or promissory notes that provide evidence of a customer's obligation to pay for purchased goods or services at a later date, often with interest. This can be beneficial for both the company, by increasing sales, and the customer, by providing flexibility in payment.

Question 2

On October 1, 2019, Westfield, Inc. sold machinery to a customer for $25,000. The customer could not pay at the time of sale, but agreed to pay 12 months later, and signed a 12-month note at 9% interest. How much interest revenue was earned during 2019? Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.

Accepted Answer

The answer of On October 1, 2019, Westfield, Inc. sold...

Question 3

When a notes receivable is outstanding at the end of an accounting period, ________.

Accepted Answer

According to the revenue recognition principle, revenue should be recognized when earned, which in the case of a notes receivable means the interest revenue earned on the note up to year-end is part of that year's earnings. Therefore, an adjusting entry is needed to record the interest revenue earned on the note up to year-end.

Question 4

On October 1, 2018, Equipment Suppliers, Inc. made a loan to one of its customers. The customer signed a 4-month note for $110,000 at 12%. How much interest revenue did the company record in the year 2018? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

To calculate the interest revenue, we need to multiply the principal amount ($110,000) by the annual interest rate (12%) and divide by the number of months in a year (12 months).

Interest revenue = ($110,000 x 0.12 x 3/12) = $3,300

Therefore, the correct answer is D ($3,300).

Question 5

If a credit customer fails to pay an accounts receivable, the company may ask the customer to sign a promissory note.

Accepted Answer

If a customer fails to pay an accounts receivable, the company may ask them to sign a promissory note as a legal document acknowledging the debt owed and outlining the terms of repayment.

Question 6

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

Accepted Answer

If the maker of a note fails to pay on the maturity date, it is considered dishonored as it has not been paid as promised.

Question 7

On October 1, 2019, Fashion Jewelers accepted a 5-month, 11% note for $7,500 in settlement of an overdue account receivable. The accounting period ends on December 31. Calculate the accrued interest on the note at December 31, 2019. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The accrued interest on the note at December 31, 2019, can be calculated as follows: Interest = Principal × Rate × Time = $7,500 × 11% × (3/12) = $206.25. When rounded to the nearest dollar, the accrued interest is $206.

Question 8

On October 1, 2019, Springfield, Inc. made a loan to one of its customers. The customer signed a 6-month note for $140,000 at 15%. How much interest revenue did the company record in 2020 for this note? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The interest revenue can be calculated using the formula: Interest = Principal x Rate x Time

Here, Principal = $140,000, Rate = 15% and Time = 3/12 (since the note was signed on October 1, 2019 and the question is asking for interest revenue in 2020, which means only 3 months of interest will be earned in 2020).

Using these values, we can calculate interest as:

Interest = $140,000 x 0.15 x (3/12) = $5,250

Therefore, the correct answer is C, $5,250.

Question 9

On November 1, 2018, Downtown Jewelers accepted a 3-month, 15% note for $6,000 in settlement of an overdue account receivable. The accounting period ends on December 31. Prepare the journal entry to record the accrued interest at the year end. Omit explanation.

Accepted Answer

The answer of On November 1, 2018, Downtown Jewelers accepted...

Question 10

On December 1, 2019, Pinewood, Inc. sold machinery to a customer for $2,000. Pinewood regularly sells machinery. The customer could not pay at the time of sale but agreed to pay 9 months later and signed a 9-month note at 12% interest. Prepare the journal entry to record the revenue at the time of sale. Ignore the entry for cost of goods sold. Omit explanation.

Accepted Answer

The answer of On December 1, 2019, Pinewood, Inc. sold...

Question 11

If the maker of the note does not pay at maturity, the note has expired and is no longer in force.

Accepted Answer

This is true because a note is a legal contract stating that the maker will repay the amount borrowed by a certain date (maturity). If the maker fails to pay at maturity, the note is in default and is no longer valid.

Question 12

When a company accepts a promissory note from a customer who cannot pay an accounts receivable, the company will credit Notes Receivable.

Accepted Answer

When a company accepts a promissory note from a customer who cannot pay an accounts receivable, the company will credit Accounts Receivable.

Question 13

A six-month note receivable for $8,000 at 13%, dated October 1, 2020, has accrued interest revenue of ________ as of December 31, 2020. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

To calculate the accrued interest revenue, we need to find out the time period for which interest has accrued, i.e., from October 1 to December 31, which is 3 months.

Using the simple interest formula,

Interest = (Principal * Rate * Time) / 12

where Principal = $8,000, Rate = 13%, and Time = 3 months

Interest = (8,000 * 13% * 3) / 12 = $260

Therefore, the accrued interest revenue as of December 31, 2020, is $260. So, the best choice is option C.

Question 14

On January 1, Southwest Corp. accepted a one-year note for $70,000 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 recorded on December 31 is ________.

Accepted Answer

The debit recorded on December 31 would be the total amount due, which includes the principal of $70,000 plus the interest for one year at 5%, which is $3,500. Therefore, the total debit is $73,500.

Question 15

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, the payee must reverse the note receivable and recognize that the amount will not be collected as originally agreed. This involves debiting Accounts Receivable to reflect the expectation of eventually collecting the funds through a different means, such as regular credit terms, instead of through the note.

Question 16

On December 1, 2018, Atlas, Inc. sold machinery to a customer for $24,000. The customer could not pay at the time of sale but agreed to pay 10 months later and signed a 10-month note at 12% interest. How much interest revenue was earned during 2019? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The interest revenue earned during 2019 is calculated as follows: Principal amount ($24,000) * Annual interest rate (12%) * Time (10/12 year) = $24,000 * 0.12 * (10/12) = $2,400. Since the interest is for 10 months of the year 2019, the calculation correctly reflects the interest for that period, rounding to the nearest dollar gives $2,400, which is not an option, indicating a mistake in my calculation. Correcting this, the interest for a full year would be $24,000 * 0.12 = $2,880, and for 10 months, it should be proportionally less, making the closest correct option D) $2,160, acknowledging a mistake in the initial step of explanation.

Question 17

Which of the following is the result of the maker of a promissory note failing to pay the note on the due date?

Accepted Answer

A dishonored note is the result of the maker of a promissory note failing to pay the note on the due date. This means that the maker has defaulted on the payment and the note is considered invalid or unenforceable.

Question 18

On October 1, 2019, Island Jewelry Company accepted a 4-month, 10% note for $2,400 in settlement of an overdue account receivable. Interest revenue was accrued through December 31, 2019. Island receives the maturity value of the note at maturity. Prepare the journal entry to record the collection. Omit explanation.

Accepted Answer

The answer of On October 1, 2019, Island Jewelry Company...

Question 19

On July 1, 2019, Landscape Equipment Sellers accepted a 3-month, 15% note for $6,000 in settlement of an overdue account receivable. Prepare the journal entry to record the acceptance of the note. Omit explanation.

Accepted Answer

The answer of On July 1, 2019, Landscape Equipment Sellers...

Question 20

The following selected transactions occurred during 2019 for Northwest Movers. The company ends it accounting year on December 31.
 $\begin{array}{|l|l|}
\hline\text { Apr. 1 } & \text { Performed services on account for Ellison Rentals, } \$ 12,000 . \
\hline & \text { Received a } \$ 12,000,3 \text { month, } 9 \% \text { note from Ellison in } \
\text { Aug. 1 } & \text { Fatisfaction of its past-due account receivable. } \
\hline \text { Nov. 1 } & \text { Collected the Ellison note at maturity }\
\hline
\end{array}$
 Prepare the journal entries to record these transactions. Omit explanations.

Accepted Answer

The answer of The following selected transactions occurred during 2019...

Quiz 8: Receivables