Question 1

Honoring a note receivable indicates that the maker has:
A)Signed.
B)Paid in full.
C)Guaranteed.
D)Notarized.
E)Cosigned.

Accepted Answer

Honoring a note receivable means the maker has paid in full according to the terms of the note.

Question 2

Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?
A)Debit Cash $3,500; credit Sales $3,500
B)Debit Accounts Receivable $3,500; credit Sales $3,500
C)Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500
D)Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500
E)Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales $3,500

Accepted Answer

The answer of Jervis accepts all major bank credit cards,...

Question 3

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. If the note is dishonored, what entry should Uniform Supply make on January 15 of the next year, assuming interest was properly accrued at the previous December 31 year end?
A)Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B)Debit Cash $4,920; credit Notes Receivable $4,920.
C)Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20, credit Notes Receivable $4,800.
D)Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit Notes Receivable $4,800.
E)Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit Notes Receivable $4,800.

Accepted Answer

The note is dishonored, so Uniform Supply should debit Accounts Receivable for the total amount due, which includes the principal and interest. The interest was accrued at year-end, so Interest Receivable is credited for the accrued amount, and Interest Revenue is credited for the interest from January 1 to January 15.

Question 4

Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 0.5% of sales, what is the amount of the bad debts expense adjusting entry?
A)$4,625
B)$3,960
C)$5,290
D)$4,750
E)$4,825

Accepted Answer

The answer of Craigmont uses the allowance method to account...

Question 5

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from overdue customer Payton Summers as payment on account. What entry should be made on the maturity date assuming the maker pays in full?
A)Debit Notes Receivable $8,500; debit Interest Receivable $170; credit Sales $8,670.
B)Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500.
C)Debit Cash $8,628; credit Interest Revenue $128; credit Notes Receivable $8,500.
D)Debit Cash $8,613; credit Interest Revenue $113; credit Notes Receivable $8,500.
E)Debit Cash $8 500; credit Notes Receivable $8,500.

Accepted Answer

When the note is paid in full, we need to record the following:
- Debit Cash for the amount received, $8,670
- Credit Notes Receivable for the principal amount, $8,500
- Credit Interest Revenue for the interest earned, which is calculated as follows: 
    - $8,500 x 8% x 90/360 = $170

Therefore, choice B is the correct entry.

Question 6

Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 4% of accounts receivable, what is the amount of the bad debts expense adjusting entry?
A)$4,845
B)$4,180
C)$3,515
D)$3,700
E)$3,850

Accepted Answer

The answer of Craigmont uses the allowance method to account...

Question 7

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on December 31, to record the accrued interest on the note?
A)Debit Cash $20; credit Notes Receivable $20.
B)Debit Cash $100; credit Notes Receivable $100.
C)Debit Interest Receivable $20; credit Interest Revenue $20.
D)Debit Interest Receivable $100; credit Interest Revenue $100.
E)Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.

Accepted Answer

To record the accrued interest on the note, Uniform Supply should debit Interest Receivable for the interest earned on the note ($4,800 x 10% x 75/365) and credit Interest Revenue for the same amount.

Interest Receivable = $98.63 rounded to $100
Interest Revenue = $98.63 rounded to $100

Therefore, the journal entry to record the accrued interest on December 31 would be:

Debit Interest Receivable: $100
Credit Interest Revenue: $100

Question 8

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $7,800. If the note is dishonored at maturity, what is the journal entry to record the dishonored note?
A)Debit Accounts Receivable $7,930; debit Bad Debt Expense $130; credit Notes Receivable $7,800.
B)Debit Bad Debt Expense $7,930; credit Accounts Receivable $7,930.
C)Debit Bad Debt Expense $7,800; credit Notes Receivable $7,800.
D)Debit Accounts Receivable-Valley Spa $7,800; credit Notes Receivable $7,800.
E)Debit Accounts Receivable-Valley Spa $7,930, credit Interest Revenue $130; credit Notes Receivable $7,800.

Accepted Answer

The dishonored note requires recording the principal amount as well as the interest. The principal is $7,800, and the interest for 60 days at 10% is $130. Therefore, Accounts Receivable is debited for the total amount of $7,930, Interest Revenue is credited for $130, and Notes Receivable is credited for $7,800.

Question 9

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid, assuming interest was properly accrued at the previous December 31 year end?
A)Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B)Debit Cash $4,920; credit Notes Receivable $4,920.
C)Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20; credit Notes Receivable $4,800.
D)Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit Notes Receivable $4,800.
E)Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800.

Accepted Answer

The note's interest for the 90 days is $120 ($4,800 x 10% x 90/360). By December 31, 75 days of interest ($100) would have been accrued. On January 15, the remaining 15 days of interest ($20) is recognized as interest revenue. The entry records the cash received, clears the note receivable, and recognizes the interest revenue and receivable.

Question 10

Which of the following is not true about the Allowance for Doubtful Accounts?
A)It is a contra asset account.
B)It is used instead of reducing accounts receivable directly.
C)It is debited when uncollectible accounts are written off.
D)It is a liability account.
E)It is credited when bad debts expense is estimated and recorded.

Accepted Answer

The Allowance for Doubtful Accounts is not a liability account, it is a contra asset account. It is used to reduce the value of accounts receivable to their net realizable value by estimating and recording the amount of uncollectible accounts. The account is credited when bad debts expense is estimated and recorded and debited when uncollectible accounts are written off.

Question 11

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the collection on the maturity date is:
A)Debit Cash $4,060; credit Notes Receivable $4,060
B)Debit Notes Receivable $4,000; credit Cash $4,000
C)Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,000
D)Debit Notes Receivable $4,060; credit Sales $4,060
E)Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000

Accepted Answer

The answer of Giorgio Italian Market bought $4,000 worth of...

Question 12

Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 5% factoring fee. What entry should Jervis make to record the transaction?
A)Debit Cash $71,250; debit Factoring Fee Expense $3,750; credit Accounts Receivable $75,000
B)Debit Accounts Receivable $71,250; debit Factoring Fee Expense $3,750; credit Cash $75,000
C)Debit Cash $75,000; credit Factoring Fee Expense $3,750; credit Accounts Receivable $75,000
D)Debit Cash $71,250; credit Accounts Receivable $71,250
E)Debit Accounts Receivable $75,000; credit Factoring Fee Expense $3,750; credit Cash $71,250

Accepted Answer

The cash received from Northern Bank is $71,250 ($75,000 - 5% factoring fee of $3,750). The factoring fee expense is debited for $3,750. The accounts receivable are credited for their full value of $75,000.

Question 13

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $7,800. If the note is dishonored at maturity, what is the amount due on the note?
A)$130
B)$7,800
C)$7,930
D)$8,050
E)$8,130

Accepted Answer

The amount due on the note is the face amount of the note plus interest. The interest is calculated as follows:Interest = Principal x Rate x TimeInterest = $7,800 x 10% x 60/360Interest = $130The amount due on the note is $7,800 + $130 = $7,930.

Question 14

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the amount due at maturity for the note.
A)$8,628
B)$8,192
C)$8,613
D)$8,500
E)$8,670

Accepted Answer

The answer of On July 9, Mifflin Company receives a...

Question 15

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the maturity date for the note.
A)October 8
B)October 7
C)November 8
D)November 7
E)November 6

Accepted Answer

The answer of On July 9, Mifflin Company receives a...

Question 16

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from overdue customer Payton Summers as payment on account. What entry should be made on July 9 to record receipt of the note?
A)Debit Accounts Receivable $8,500; credit Sales $8,500.
B)Debit Notes Receivable $8,670; credit Sales $8,670.
C)Debit Notes Receivable $8,500; credit Accounts Receivable $8,500.
D)Debit Notes Receivable $8,500; credit Sales $8,500.
E)Debit Notes Receivable $8,725; credit Interest Revenue $225; credit Accounts Receivable $8,500.

Accepted Answer

The entry should debit Notes Receivable and credit Accounts Receivable for the amount of the note, $8,500, as it is being received as payment on account.

Question 17

Music World sold $7,800 in electronic components to Jax Recording Studio. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the sales transaction is:
A)Debit Accounts Receivable $7,800; credit Sales $7,800
B)Debit Accounts Receivable $7,904; credit Sales $7,904
C)Debit Notes Receivable $7,800; credit Sales $7,800
D)Debit Notes Receivable $7,904; credit Sales $7,904
E)Debit Notes Receivable $7,800; debit Interest Receivable $104; credit Sales $7,904

Accepted Answer

Since Jax signed a promissory note, the transaction should be recorded as an exchange of notes, with the note receivable being debited and the sales revenue being credited. Therefore, the correct journal entry is to debit Notes Receivable $7,800 and credit Sales $7,800. Option A, B, and D are incorrect because they credit Sales but don't debit the correct receivable account. Option E is incorrect because it records interest receivable, which is not mentioned in the problem.

Question 18

Music World sold $7,800 in electronic components to Jax Recording Studio. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the collection on the maturity date is:
A)Debit Cash $7,800; credit Accounts Receivable $7,800
B)Debit Accounts Receivable $7,904; credit Notes Receivable $7,800; credit Interest Receivable $104
C)Debit Notes Receivable $7,800; credit Cash $7,904; credit Interest Revenue $104
D)Debit Cash $7,904; credit Notes Receivable $7,800; credit Interest Revenue $104
E)Debit Cash $7,904; credit Notes Receivable $7,904

Accepted Answer

On the maturity date, Jax Recording Studio will pay the note's full face value plus interest. The entry should reflect the collection of the note, the cancellation of the note receivable, and the recognition of the interest earned. Therefore, the correct journal entry is to debit Cash for the payment received of $7,904 ($7,800 + $104), credit Notes Receivable for the maturity value of the note ($7,800), and credit Interest Revenue for the interest earned ($104).

Question 19

Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?
A)Debit Accounts Receivable $4,800; credit Sales $4,800.
B)Debit Cash $4,680; debit Credit Card Expense $120; credit Sales $4,800.
C)Debit Cash $4,800; credit Sales $4,800.
D)Debit Cash $4,920; credit Credit Card Expense $120; credit Sales $4,800.
E)Debit Accounts Receivable $4,680; debit Credit Card Expense $120; credit Sales $4,800.

Accepted Answer

When customers use First Savings Bank's credit card, a 2.5% charge is assessed on the sales amount. Therefore, Brinker will not receive the full $4,800 in credit sales. To record the deposit, Brinker should debit Cash for the amount received, which is $4,680 (the full amount minus the 2.5% charge of $120) and debit Credit Card Expense for the 2.5% charge of $120. The total debits should equal the credit to Sales, which is $4,800.

Question 20

Failure by a promissory notes' maker to pay the amount due at maturity is known as:
A)Protesting a note.
B)Closing a note.
C)Dishonoring a note.
D)Discounting a note.
E)Depreciating a note.

Accepted Answer

Dishonoring a note refers to the failure by the maker of a promissory note to pay the amount due at maturity. Protesting a note refers to the formal declaration made by a notary public that a negotiable instrument was not paid when due. Closing a note and discounting a note are not commonly used terms in relation to promissory notes. Depreciating a note refers to the decrease in value of an asset over time, which is not applicable in this context.

Quiz 7: Reporting and Analyzing Receivables

Honoring a note receivable indicates that the maker has:

Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB) , which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. If the note is dishonored, what entry should Uniform Supply make on January 15 of the next year, assuming interest was properly accrued at the previous December 31 year end?

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from overdue customer Payton Summers as payment on account. What entry should be made on the maturity date assuming the maker pays in full?

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on December 31, to record the accrued interest on the note?

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $7,800. If the note is dishonored at maturity, what is the journal entry to record the dishonored note?

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid, assuming interest was properly accrued at the previous December 31 year end?

Which of the following is not true about the Allowance for Doubtful Accounts?

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the collection on the maturity date is:

Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 5% factoring fee. What entry should Jervis make to record the transaction?

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $7,800. If the note is dishonored at maturity, what is the amount due on the note?

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the amount due at maturity for the note.

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the maturity date for the note.

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from overdue customer Payton Summers as payment on account. What entry should be made on July 9 to record receipt of the note?

Music World sold $7,800 in electronic components to Jax Recording Studio. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the sales transaction is:

Music World sold $7,800 in electronic components to Jax Recording Studio. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the collection on the maturity date is:

Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

Failure by a promissory notes' maker to pay the amount due at maturity is known as: