True/False
Indicate whether the sentence or statement is true
or false.
|
|
|
1.
|
The
Notes Payable account is always debited or credited for the face value of a note.
|
|
|
2.
|
The
amount shown on a note is called the face value.
|
|
|
3.
|
The
interest on a $4,000 face value, 3-month note bearing interest at 9 percent a year would be
$1,080.
|
|
|
4.
|
A
company that issued a 6-month note payable would report its face value on the balance sheet as a
long-term liability.
|
|
|
5.
|
Interest Expense usually appears on the income statement as a non-operating
expense.
|
|
|
6.
|
The
entry to record the issuance of a promissory note includes a credit to the Notes Payable
account.
|
|
|
7.
|
Upon
payment of the amount due on a $3,000 face value, 60-day, 6 percent note, the accountant will record
an entry that includes a debit to Notes Payable for $3,000.
|
|
|
8.
|
Even
if an interest-bearing note receivable is dishonored, interest income due on the note should be
recorded.
|
|
|
9.
|
When
a note receivable is discounted, the proceeds are computed by subtracting the discount from the
maturity value of the note.
|
|
|
10.
|
Interest earned on a promissory note is recorded by debiting the Interest Income
account.
|
|
|
11.
|
Interest Income is classified as a current asset.
|
|
|
12.
|
If
the proceeds of a discounted note are less than the face amount, the difference is debited to
Interest Expense.
|
Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
|
|
|
13.
|
A
firm purchased equipment for $6,000 on credit and issued a 90-day note bearing interest at 8 percent
a year as evidence of the debt. To record this transaction, the accountant
would a. | debit Equipment
for $6,000 and credit Notes Payable for $6,000. | b. | debit Equipment
for $6,120, credit Interest Expense for $120,and credit Notes Payable for
$6,000. | c. | debit Equipment for $6,000, debit Interest Expense for $120,
and credit Notes Payable for $6,120. | d. | Debit equipment for $6,000 and credit Accounts Payable for
$6,000. | | |
|
|
|
14.
|
The
total that must be paid when a note becomes due if known as a. | the
principle. | c. | the note
value. | b. | the face value. | d. | the maturity value. | | | | |
|
|
|
15.
|
When
a company issues a promissory note, the accountant records an entry that includes a credit to Note
Payable for a. | the face value
of the note. | b. | the face value of the note plus the interest that will
accrue. | c. | the face value less the interest that will
accrue. | d. | the maturity value of the note. | | |
|
|
|
16.
|
How
much interest will accrue on a $22,000 face value, 60-day note that bears interest at 9 percent a
year? a. | $330. | c. | $495. | b. | $1,980. | d. | $990. | | | | |
|
|
|
17.
|
Notes
Payable due within one year are usually shown a. | in the Current Assets section of the balance
sheet. | b. | in the Current Liabilities section of the balance
sheet,. | c. | in the Other Expenses section of the income
statement. | d. | in the Long-Term Liabilities section of the balance
sheet. | | |
|
|
|
18.
|
The
maturity value of a 90-day note for $3,000 that bears interest at 10 percent a year
is a. | $3,300. | c. | $2,925. | b. | $3,000. | d. | $3,075. | | | | |
|
|
|
19.
|
Upon
collection of the amount due on a $5,000 face value, 90-day note with interest at 10 percent a year,
the Note Receivable account is a. | debited for $5,500. | c. | credited for $5,125. | b. | credited for
$5,000. | d. | debited for
$5,000. | | | | |
|
|
|
20.
|
The
Interest Income account a. | usually has a credit balance. | b. | is usually shown
in the Current Assets section of the balance sheet. | c. | is debited when
the firm records the effects of a dishonored note receivable. | d. | is credited when
the firm accepts a note receivable from a customer. | | |
|
|
|
21.
|
If
the amount due on a note receivable is not collected at maturity, a. | Allowance for
Doubtful Accounts should immediately be debited. | b. | the note is said
to be dishonored. | c. | the face value of the note should continue to be carried in the
Notes Receivable account until all possible means of collecting the note have been
exhausted. | d. | Uncollectible Accounts Expense should be
debited. | | |
|
|
|
22.
|
A
60-day note dated April 1 was turned over to the bank for discounting on April 21. The number
of days used in computing the dollar amount of the discount is
|
|
|
23.
|
If
the proceeds of a note discounted at a bank are greater than the face value of the note, the
difference is recognized as a. | interest receivable. | c. | notes receivable discounted. | b. | interest
expense. | d. | interest
income. | | | | |
|
Numeric Response
|
|
|
24.
|
Find
the December 31 accrued interest on a $3,000, 60-day, 10% note dated December
10.
|
|
|
25.
|
Find
the December 31 accrued interest on a $4,200, 3-month, 11% note dated December
2.
|
|
|
On
April 20 the business accepted the ABC Company's $1,080 note in payment of their account receivable
balance. The note was at 8% for 60 days. [Assume a 360-day year in your calculations
for interest amounts.]
|
|
|
26.
|
If
the note was discounted at the bank on May 5, how many days in the discount
period?
|
|
|
27.
|
If
the note was discounted at the bank on May 5 at 7%, what amount would be debited to the Cash
account in the entry (the proceeds)?
|
|
|
28.
|
If
the note was discounted at the bank on May 5 at 7%, what amount would be credited to the Interest
Income account in the entry?
|
|
|
29.
|
If
the note was discounted at the bank on May 5 at 7%, what would be the discount
amount?
|
|
|
30.
|
The
note was discounted at the bank on May 5 at 7% and the ABC Company defaulted on the payment.
Since the business was contingently liable, how much would the business have to pay the bank
if their protest fee was $25?
|