Accounting for Notes and Receivables Quiz

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Questions and Answers

What does the expense recognition principle, as applied to bad debts, require?

Depletion method

Accrual method

Allowance method (correct)

Cash method

What is the result of a credit sale of $5,275 to a customer?

A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.

Who is the person that signs a note receivable and promises to pay?

Maker

What effect does writing off an uncollectible account have on a company's net income and total assets when using the allowance method?

No effect on net income; no effect on total assets. Signup and view all the answers

When does a 90-day note issued on April 10 mature?

July 9 Signup and view all the answers

What is the maturity date of a note receivable?

The day the note is due to be repaid. Signup and view all the answers

What does the accounts receivable turnover measure?

How often, on average, receivables are received and collected during the period. Signup and view all the answers

Sellers allow customers to use bank credit cards for all of the following reasons except:

To charge more due to fees and interest Signup and view all the answers

What is a promissory note?

A written promise to pay a specified amount of money at a certain date. Signup and view all the answers

What is the allowance method that assumes a given percent of a company's credit sales for the period is uncollectible called?

The percent of sales method. Signup and view all the answers

If a company uses the percent of sales method and estimates that 0.4% of net credit sales are uncollectible, what amount should be debited to Bad Debts Expense if net credit sales are $802,000?

$3,208 Signup and view all the answers

What is the total interest due on a $26,000 promissory note at 6% after 180 days?

$780 Signup and view all the answers

What is the total amount due at maturity for a $9,100, 120-day, 6% note?

$9,282 Signup and view all the answers

What is the entry to record the write-off of a $4,200 uncollectible account?

Debit Allowance for Doubtful Accounts $4,200; credit Accounts Receivable - A.Hopkins $4,200. Signup and view all the answers

If the unadjusted trial balance reports Accounts Receivable as $98,700 and Allowance for Doubtful Accounts as $1,111, what amount should be debited to Bad Debts Expense assuming 6% of accounts receivable are uncollectible?

$4,811 Signup and view all the answers

What is the interest accrued on $6,000 at 7% for 90 days?

$105 Signup and view all the answers

What is the total amount to be paid at maturity for a $28,000 promissory note at 6% for 180 days?

$28,840 Signup and view all the answers

What is the amount of interest that Jasper will collect on a $36,000, 90-day, 9.0% cash loan?

$810 Signup and view all the answers

What is the accounts receivable turnover for a company with net sales of $1,531,800 and average accounts receivable of $414,000?

3.7 Signup and view all the answers

What is Jasper's entry to record a $91,000, 90-day, 7% cash loan?

Debit Notes Receivable for $91,000; credit Cash $91,000. Signup and view all the answers

What adjusting entry should be made on December 31 for an $18,000, 60-day, 5% note received?

Debit Interest Receivable $105; credit Interest Revenue $105. Signup and view all the answers

What entry should Jervis make to record $4,900 in NB Card credit sales on June 28?

Debit Cash $4,655.00; debit Credit Card Expense $245.00; credit Sales $4,900. Signup and view all the answers

What entry should be made on July 9 to record receipt of an $8,800, 90-day, 8% note?

Debit Notes Receivable $8,800; credit Accounts Receivable $8,800. Signup and view all the answers

If Valley Spa signed a 45-day, 7% promissory note for $10,400 and it is dishonored, what is the amount due on the note?

10,491 Signup and view all the answers

Study Notes

Expense Recognition Principle

The allowance method is used for accounting for bad debts, aligning with the expense recognition principle.

Credit Sale Accounting

Credit sale of $5,275 results in a debit to Accounts Receivable and a corresponding debit to the customer's account in the subsidiary ledger.

Maker of a Note Receivable

The individual who signs and guarantees the payment of the principal and interest on a note receivable is referred to as the maker.

Write-Off of Uncollectible Accounts

Writing off an uncollectible account has no effect on both net income and total assets when the allowance method is applied.

Maturity Date Calculation

A 90-day note issued on April 10 matures on July 9.

Maturity Date Definition

The maturity date of a note receivable is the date when the principal is due for repayment.

Accounts Receivable Turnover

Accounts receivable turnover indicates how frequently receivables are collected during a specific time period, showing efficiency in collection.

Credit Card Acceptance by Sellers

Sellers accept bank or third-party credit cards to facilitate sales, but they do not benefit from charging more due to related fees and interest.

Promissory Note Definition

A promissory note is defined as a written commitment to pay a specific amount of money by a specified date.

Percent of Sales Method

The allowance method that estimates uncollectible accounts as a percentage of credit sales is known as the percent of sales method.

Bad Debts Expense Calculation

Under the percent of sales method, if 0.4% of net credit sales are estimated uncollectible, the Bad Debts Expense for the year would be $3,208.

Interest on Promissory Notes

A 180-day promissory note for $26,000 at 6% will accrue total interest of $780 by its maturity date.

Note Maturity Calculation

A 120-day note of $9,100 at 6% will amount to $9,282 at maturity.

Account Write-Off Entry

For uncollectible accounts, such as a $4,200 account of A. Hopkins, the entry would require a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

Bad Debts Expense Estimation

When estimating bad debts via the percent of receivables method, assuming 6% of accounts receivable are uncollectible leads to a Bad Debts Expense of $4,811.

Interest Accrual Calculation

The interest accrued on $6,000 at a rate of 7% for 90 days totals $105.

Total Amount due at Maturity

For a loan of $28,000 on a 180-day note at 6%, the total amount due at maturity is $28,840.

Interest Calculation on a Cash Loan

An interest amount of $810 is collected on a 90-day, $36,000 loan at 9.0%.

Accounts Receivable Turnover Calculation

With net sales of $1,531,800 and average accounts receivable of $414,000, the accounts receivable turnover ratio is 3.7.

Loan Recording Entry

When issuing a $91,000, 90-day, 7% cash loan, the transaction should be recorded by debiting Notes Receivable and crediting Cash.

Year-End Adjusting Entry

An adjusting entry on December 31 for an $18,000, 60-day, 5% note would debit Interest Receivable and credit Interest Revenue by $105.

Credit Sales Recording

For $4,900 in NB Card credit sales, the entry on June 28 includes debiting Cash for $4,655, debiting Credit Card Expense for $245, and crediting Sales for $4,900.

Note Receipt Entry

On July 9, when receiving an $8,800, 90-day, 8% note, the entry should debit Notes Receivable and credit Accounts Receivable for the same amount.

Dishonored Promissory Note

If a note for $10,400 signed by Valley Spa is dishonored, the amount due will total $10,491.

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Description

Test your knowledge on key concepts related to the accounting for notes and receivables. This quiz covers the allowance method for bad debts, credit sales accounting, and maturity date calculations. Enhance your understanding of how these elements interact in financial statements.