Accounting Ch.7

On August 21, Alix Company receives a $2,000, 60-day, 6% note from a customer as payment on her account. How much interest will be due on October 20, the due date?

$20 Reason: $2,000 x 6% x 60/360

On June 30, Nance Company receives a $5,000, 90-day, 4% note from a customer as payment on her account. How much interest will be due on the note's maturity date?

$50 Reason: $5,000 x 4% x 90/360

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 of 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:

- Interest Revenue for $200. Reason: Notes Receivable is credited for the principal only.

A note is honored when it is paid in full.

- True

On November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 overdue account. Eli's journal entry to record this transaction on November 1, would include a: (Check all that apply.)

- credit to Accounts Receivable for $6,000. - debit to Notes Receivable for $6,000.

The ___________ of the note is the one that signed the note and promised to pay at maturity. The ___________ of the note is the person to whom the note is payable

- maker - payee

To compute interest due on a maturity date, multiply __________ times __________ times time expressed in fraction of year.

- principle - interest rate

When the maker of a note pays at maturity, the note is said to be dishonored.

False Reason: When the maker of a note pays at maturity, the note is said to be honored

Kaiven Company accepted a $12,000, 60-day, 6% note on December 21 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 would include a debit to:

Interest Receivable for $20 Reason: Need to record interest from December 21 to December 31 which is 10 days. $12,000 x .06 x (10/360) = $20.

Kaiven Company accepted a $12,000, 60-day, 6% note on December 21 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 would include a debit to:

Interest Receivable for $20.

On December 1, Christy Co. accepted a 60-day, 6%, $1,000 note due January 30. On December 31, the appropriate year-end adjusting entry was made. On January 30, the note was honored and paid in full. The entry to record receipt of payment on January 30 (assuming no reversing entry was made) would include a credit to: (Check all that apply.)

Interest Receivable for $5. Interest Revenue for $5. Notes Receivable for $1,000.

Lion Company accepted a $15,000, 30-day, 6% note on December 16 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 for Lion Company would include a credit to:

Interest Revenue for $37.50. Reason: The adjusting entry for Lion Company is to credit interest revenue for $37.50 [$15,000 x .06 x (15/360)]. Interest receivable would be debited.

On November 1, Alice Co. accepted a 90-day, 6%, $2,000 note due January 30. On December 31, the appropriate adjusting entry was made. On January 30 of the next year, the note was honored and paid in full. The entry to record receipt of payment on January 30 would include a credit to: (Check all that apply.)

Notes Receivable for $2,000 Interest Revenue for $10. Interest Receivable for $20. Reason: On 12/31, a journal entry was made to debit interest receivable and credit interest revenue for $20 ($2,000 x 6% x 60/360). Cash will be debited for $2,030. Reason: On 12/31, a journal entry was made to debit Interest Receivable and credit Interest Revenue for $20 ($2,000 x 6% x 60/360). Reason: On 12/31, a journal entry was made to debit Interest Receivable and credit Interest Revenue for $20 ($2,000 x 6% x 60/360).

DonCo, Inc. sold merchandise on January 14, and accepted a 90-day, 5% promissory note in the amount of $5,000. On January 14, the entry to record this transaction would include a debit to:

Notes Receivable in the amount of $5,000

Select all that apply To compute interest due on a maturity date, you should multiply which of the following factors?

Principal Interest rate Time expressed in fraction of year

Match the following terms to the appropriate definitions.

Promissory note - Written promise to pay a specified amount of money Principal - Amount that the signer agrees to pay back, not including interest Interest - Charge from using money loaned from one entity to another Maker - One who signed the note and promised to pay at maturity Payee - The person to whom the note is payable Maturity date - Day that the principal and interest must be paid

On January 1, Franz Co. accepted a 30-day, 6% note in the amount of $5,000 from Bria Co., a customer. On January 31, the due date of the note, Bria honors the note and pays in full. The journal entry that Franz would make to record payment of this note would include a: (Check all that apply.)

credit to Note Receivable for $5,000. debit to Cash for $5,025. credit to Interest Revenue for $25. Reason: Credit to Notes Receivable for $5,000. Credit to Interest Revenue for $25. $5,000 x .06 x 30/360=$25. Reason: Credit to Interest Revenue for $25. $5,000 x .06 x 30/360=$25.

When a note's maker does not pay at maturity, the note is considered (honored/dishonored) .

dishonored

The principal and interest of a note are due on its maturity date. If the maker of the note pays the note in full, the maker is said to have _____________ the note.

honored