Notes Receivable TEST BANK PDF

Preview

Summary

Download Notes Receivable TEST BANK PDF

Description

Junior Philippine Institute of Accountants University of Cebu – Banilad Chapter

NOTES RECEIVABLE TEST BANK

MULTIPLE CHOICE 1. The basic issues in accounting for notes receivable include each of the following except a. analyzing notes receivable. b. disposing of notes receivable. c. recognizing notes receivable. d. valuing notes receivable. 2. A 60-day note receivable dated June 13 has a maturity date of a. August 13. b. August 12. c. August 11. d. August 10. 3. The maturity value of a $90,000, 10%, 60-day note receivable dated July 3 is a. $90,000. b. $99,000. c. $105,000. d. $91,500. 4. A 90-day note dated June 14 has a maturity date of a. September 14. b. September 12. c. September 13. d. September 15. 5. A promissory note a. is not a formal credit instrument. b. may be used to settle an accounts receivable. c. has the party to whom the money is due as the maker. d. cannot be factored to another party.

6. 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. 7. 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. 8. The interest on a $5,000, 10%, 1-year note receivable is a. $5,000. b. $500. c. $5,050. d. $5,500. 9. 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. 10. 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

11. 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. 12. Short-term notes receivable is reported at a. cash (net) realizable value. b. face value. c. gross realizable value. d. maturity value. 13. 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. 14. The average collection period is computed by dividing a. net credit sales by average gross accounts receivable. b. net credit sales by ending gross accounts receivable. c. the accounts receivable turnover ratio by 365 days. d. 365 days by the accounts receivable turnover ratio. 15. Herbert Company lends Newton Company $30,000 on April 1, accepting a fourmonth, 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 Cash b. Interest Receivable Interest Revenue c. Cash Interest Revenue d. Interest Receivable Interest Revenue

30,000 30,000 225 225 225 225 900 900

16. 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.

17. 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. 18. The interest on a $2,000, 6%, 90-day note receivable is a. $120. b. $60 c. $30. d. $90. 19. Notes receivable are recognized in the accounts at a. cash (net) realizable value. b. face value. c. gross realizable value. d. maturity value. 20. The retailer considers VISA and MasterCard sales as a. cash sales. b. promissory sales. c. credit sales. d. contingent sales.

PROBLEM SOLVING Problem 1 Rockwell Company reported the following receivables on December 31, 2018: Accounts Receivable, net of P520,000 allowance for doubtful accounts Interest Receivable Notes Receivable

3,840,000 190,000 4,000,000

*The notes receivable comprised: ▪ P1,000,000 note dated October 31, 2018, with principal and interest payable on October 31, 2019. ▪ P3,000,000 noted dated March 31, 2018, with principal and 8% interest payable on March 31, 2019.

*During 2019, sales revenue totaled P21,200,000, P19,800,000 cash was collected from customers, and P410,000 in accounts receivable were written off. All sales are made on a credit basis. *Doubtful accounts expense is recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end accounts receivable. 1. What amount should be reported as interest income for 2019? 2. What amount should be reported as doubtful accounts expense for 2019? Problem 2 On January 1, 2018, Gomez de Liano Company sold goods to Dela Cruz company. Dela Cruz signed a noninterest-bearing note requiring payment of P600,000 annually for seven years. The first payment was made on January 1, 2018. The prevailing rate of interest for this type of note at date of issuance was 10%. 1. 2. 3. 4.

What amount should be recorded as sales revenue in January 2018? What is carrying amount of the note receivable on January 1, 2018? What is the interest income for 2018? What is the carrying amount of the note receivable on December 31, 2018?

Problem 3 On December 31, 2018, Villamontes Company sold a machine in the ordinary course of business to Noviemendo Company in exchange for a noninterest bearing note requiring ten annual payments of P1,000,000. The entity made the first payment on December 31, 2018. The market interest rate for similar notes at date of issuance was 8%. 1. What is the amount of sales revenue? 2. On December 31, 2018, what is the carrying amount of the note receivable? 3. What is the interest income for 2019? What is the carrying amount of the note receivable on December 31, 2019?

ANSWERS: MULTIPLE CHOICE 1. 2. 3. 4. 5.

A B D B B

6. A 7. A 8. B 9. A 10. D

11. C 12. A 13. D 14. D 15. B

16. C 17. B 18. C 19. B 20. A

Problem 1 1. 110,000 P3M x 8% x 3/12 (January 1 to March 31, 2019)

60,000

P1M x 6% x 10/12 (January 1 to October 31, 2019)

50,000

Total Interest Revenue

110,000

2. 425,000 Accounts Receivable Dec. 31, 2018 (3,840,000 + 520,000)

4,360,000

Credit sales

21,200,000

Cash collections

(19,800,000)

Write-off

(410,000)

Accounts receivable- Dec. 31, 2019

5,350,000

Allowance- Dec. 31, 2018 Doubtful account expense (SQUEEZE) Total Write-off Allowance- Dec. 31, 2019 (10% x 5,350,000)

520,000 425,000 945,000 (410,000) 535,000

Problem 2 1. 3,216,000 First payment on January 1, 2018 Present value of remaining six payments (600,000 x 4.36) Correct sales revenue

600,000 2,616,000 3,216,000

Note receivable (600,000 x 6)

3,600,00

Present value of six payments

(2,616,000)

Unearned interest income- January 1, 2018

984,000

2. 2,616,000 – Present value of remaining six payments 3. 261,600 – Interest income for 2018 (10% x 2,616,000) 4. 2,877,600 Note receivable- December 31, 2018 Unearned interest (984,000-261,600)

income-

December

3,600,000 31,

2018

Carrying amount- December 31, 2018

(722,400) 2,877,600

Problem 3 1. 7,250,000 First payment on December 31, 2018

1,000,000

Present value of remaining nine payments (1M x 6.25)

6,250,000

Total sales revenue

7,250,000

2. 6,250,000 - Present value of remaining nine payments 3. 500,000 – Interest income for 2019 (8% x 6,250,000) 4. 5,750,000 Note receivable- December 31, 2018

9,000,000

Collection on December 31, 2019

(1,000,000)

Note receivable- December 31, 2018

8,000,000

Unearned interest income- December 31, 2109 (2,750,000-500,000)

(2,250,000)

Carrying amount- December 31, 2019

5,750,000...