11) Warner Enterprises was unable to collect a $1,500 note receivable plus $75 interest on the maturity date, but hoped to collect the amount in the future. Warner should record this as:

A) debit Bad Debts Expense $1,500; credit Notes Receivable $1,500.

B) debit Allowance for Doubtful Accounts $1,575; credit Notes Receivable $1,575.

C) debit Accounts Receivable $1,500; credit Interest Income $75; credit Cash $1,575.

D) debit Accounts Receivable $1,575; credit Interest Income $75; credit Notes Receivable $1,500.

12) If your customer does not pay the note at maturity, the journal entry on your books would be:

A) debit Notes Payable and credit Accounts Payable.

B) debit Accounts Payable, credit Interest Income and credit Notes Payable.

C) debit Accounts Receivable, credit Interest Income and credit Notes Receivable.

D) debit Notes Receivable, credit Interest Income, and credit Accounts Receivable.

13) A promissory note issued when receiving a time extension on an amount owed to a suppler would have which effect on the categories?

A) Total assets would be increased.

B) Total liabilities would be increased.

C) Owner’s equity would be decreased.

D) None of these answers is correct.

14) The proper entry to make when a note is paid on the maturity date depends on whether the note is an interest-bearing or non-interest-bearing note.

15) To obtain an extension of time for the payment of an account, a customer may issue a note for any portion of the amount due.

16) Receiving payment from a customer on an interest bearing note would entail a debit to Interest Income.

17) When an account receivable is exchanged for a note receivable, a shift in equity occurs.

18) A note that is not paid on the maturity date is considered discounted.

19) Prepare the journal entries for Fit City Company for the following transactions:

a) Fit City sold $7,500 of merchandise to AllSport Company on account. The company uses the periodic method.

b) Fit City received a 120-day, $7,500, 8% note for a time extension of past-due account of AllSport.

c) Collected the AllSport note on the maturity date.

 

 



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