Business 1A - Chapter 7

Lion Company accepted a $15000, 30-day, 6% note on 12/16 from Diaz Co., granting a time extension on his past-due a/r. the adjusting entry on 12/31 for Lion Company would include a credit to:

-interest revenue for 37.50 explanation: the adjusting entry for Lion Company is to credit interest revenue for $37.50 ($15000*0.06*(15/360))

On November 1, Eli Co. received a $6000, 60-day, 6% note from a customer as payment on his account. Eli's journal entry to record this transaction would be

1. credit to A/R for $6000 2. debit to N/R for $6000

P. Jameson Co. sold $500 of merchandise on master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a:

1. debit to Credit Card for $20 2. credit to Sales for $500 3. debit to Cash for $480

promisary note

A written promise to pay a certain amount of money with a certain interest rate on a certain date

interest revenue for $5 notes receivable for $1,000 interest receivable for $5

On December 1, Christy Co. accepted a 60-day, 6%, $1000 note due 1/31. On 12/31 the end of the year adjusting entry was made. on 1/30 the note was honored and paid in full. The entry to record receipt of payment on 1/30 (no reversing entry was made) would include a CREDIT to:

$5000 x 4% x 90/360 = 50

On June 30, Nance Company receives a $5000, 90-day, 4% note from a customer as payment on her account. How much interest will be due on the note's maturity date?

Interest revenue for $200

On March 14, Teal Co. accepted a 120-day, 6% note in the amount of $10,000 from AZC Co., a customer. On the due date the note, AZC honors the note and pays in full. The journal entry that Teal would make to record payment of this note would include a CREDIT to:

Avia Company determines that a customer balance of $400 from Allia, Inc is uncollectible. Avia uses the allowence method to account for bad debts. The entry to write off the uncollectible balance will include a debit to:

allowance for doubtful accounts

principal

amount that the signer agrees to pay back, not including interest

interest

charge from using money loaned from one entity to another

to quickly generate cash to reduce risk of non payment

companies sometimes convert receivables to cash before they are due by selling them or using them as security for a loan. The reasons that a company may convert receivables before their due date include:

maturity date

day the principal and interest must be paid

maker

one who signed the note and promised to pay at maturity

payee

the person to whom the note is payable