Question Details

CHAPTER 9 ACCOUNTING FOR RECEIVABLES MULTIPLE CHOICE QUESTIONS PART 8


MULTIPLE CHOICE QUESTIONS


121. Which of the following is not true regarding a promissory note?
a. Promissory notes may not be transferred to another party by endorsement.
b. Promissory notes may be sold to another party.
c. Promissory notes give a stronger legal claim to the holder than accounts receivable.
d. Promissory notes may be bearer notes and not specifically identify the payee by
name.
Accounting for Receivables
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122. The two key parties to a promissory note are the
a. maker and a bank.
b. debtor and the payee.
c. maker and the payee.
d. sender and the receiver.
123. When calculating interest on a promissory note with the maturity date stated in terms of
days, the
a. maker pays more interest if 365 days are used instead of 360.
b. maker pays the same interest regardless if 365 or 360 days are used.
c. payee receives more interest if 360 days are used instead of 365.
d. payee receives less interest if 360 days are used instead of 365.
124. The maturity value of a $4,000, 9%, 60-day note receivable dated February 10th is
a. $4,060.
b. $4,030.
c. $4,000.
c. $4,360.
125. The interest on a $5,000, 10%, 1-year note receivable is
a. $5,000.
b. $500.
c. $5,050.
d. $5,500.
126. The maturity value of a $30,000, 8%, 3-month note receivable is
a. $30,600.
b. $30,240.
c. $32,400.
d. $30,200.
127. The interest on a $4,000, 6%, 60-day note receivable is
a. $240.
b. $40.
c. $80.
d. $120.
128. The interest on a $2,000, 6%, 90-day note receivable is
a. $120.
b. $60
c. $30.
d. $90.
129. Notes receivable are recognized in the accounts at
a. cash (net) realizable value.
b. face value.
c. gross realizable value.
d. maturity value.
9 - 20 Test Bank for Accounting Principles, Eighth Edition
130. A note receivable is a negotiable instrument which
a. eliminates the need for a bad debts allowance.
b. can be transferred to another party by endorsement.
c. takes the place of checks in a business firm.
d. can only be collected by a bank.
131. A company that receives an interest bearing note receivable will
a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.
132. The face value of a note refers to the amount
a. that can be received if sold to a factor.
b. borrowed plus interest received at maturity from the maker.
c. that is identified on the formal instrument of credit.
d. remaining after a service charge has been deducted.
133. Risen Company receives a $5,000, 3-month, 8% promissory note from Dodd Company in
settlement of an open accounts receivable. What entry will Risen Company make upon
receiving the note?
a. Notes Receivable............................................................ 5,100
Accounts Receivable—Dodd Company................. 5,100
b. Notes Receivable............................................................ 5,100
Accounts Receivable—Dodd Company................. 5,000
Interest Revenue ................................................... 100
c. Notes Receivable............................................................ 5,000
Interest Receivable ................................................ 100
Accounts Receivable—Dodd Company................. 5,000
Interest Revenue ................................................... 100
d. Notes Receivable............................................................ 5,000
Accounts Receivable—Dodd Company................. 5,000
134. When a note is accepted to settle an open account, Notes Receivable is debited for the
note's
a. net realizable value.
b. maturity value.
c. face value.
d. face value plus interest.
135. Short-term notes receivable are reported at
a. cash (net) realizable value.
b. face value.
c. gross realizable value.
d. maturity value.
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136. Short-term notes receivables
a. have a related allowance account called Allowance for Doubtful Notes Receivable.
b. are reported at their gross realizable value.
c. use the same estimations and computations as accounts receivable to determine cash
realizable value.
d. present the same valuation problems as long-term notes receivables.
137. When a note receivable is dishonored,
a. interest revenue is never recorded.
b. bad debts expense is recorded.
c. the maturity value of the note is written off.
d. Accounts Receivable is debited if eventual collection is expected.
138. Herbert Company lends Newton Company $30,000 on April 1, accepting a four-month,
9% interest note. Herbert Company prepares financial statements on April 30. What
adjusting entry should be made before the financial statements can be prepared?
a. Note Receivable ............................................................ 30,000
Cash ..................................................................... 30,000
b. Interest Receivable ........................................................ 225
Interest Revenue .................................................. 225
c. Cash .............................................................................. 225
Interest Revenue .................................................. 225
d. Interest Receivable ........................................................ 900
Interest Revenue .................................................. 900
139. When a note receivable is honored, Cash is debited for the note's
a. net realizable value.
b. maturity value.
c. gross realizable value.
d. face value.
140. The average collection period for receivables is computed by dividing 365 days by
a. net credit sales.
b. average accounts receivable.
c. ending accounts receivable.
d. accounts receivable turnover ratio.