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Questions and Answers
What is the present value of the interest for a note with an annual interest of €1,000 over three years at 10%?
What is the present value of the interest for a note with an annual interest of €1,000 over three years at 10%?
- €2,487 (correct)
- €3,300
- €3,000
- €2,000
If the principal of a zero-interest-bearing note is $10,000 and the market interest rate is 9%, what is the present value of the principal?
If the principal of a zero-interest-bearing note is $10,000 and the market interest rate is 9%, what is the present value of the principal?
- €8,000
- €9,174
- €6,100
- €7,513 (correct)
How is the receipt of a zero-interest-bearing note recorded in Jeremiah Company's books?
How is the receipt of a zero-interest-bearing note recorded in Jeremiah Company's books?
- Notes Receivable €10,000; Cash €10,000 (correct)
- Cash €10,000; Notes Receivable €10,000
- Notes Receivable €10,000; Interest Revenue €10,000
- Cash €9,500; Notes Receivable €10,000
What is the total current market value of the note at face value in the provided illustration?
What is the total current market value of the note at face value in the provided illustration?
What entry would be made for the interest revenue received at the end of the first year?
What entry would be made for the interest revenue received at the end of the first year?
What is the correct journal entry for Bad Debt Expense when the Allowance for Doubtful Accounts has a credit balance of €800?
What is the correct journal entry for Bad Debt Expense when the Allowance for Doubtful Accounts has a credit balance of €800?
When estimating bad debts at 5% of accounts receivable, what amount is recorded for Bad Debt Expense if accounts receivable total €100,000?
When estimating bad debts at 5% of accounts receivable, what amount is recorded for Bad Debt Expense if accounts receivable total €100,000?
What adjustment is made to the Bad Debt Expense if the Allowance for Doubtful Accounts has a $1,500 debit balance?
What adjustment is made to the Bad Debt Expense if the Allowance for Doubtful Accounts has a $1,500 debit balance?
If Duncan Company estimates bad debts at 5% and has a previous balance of €2,000 in the Allowance for Doubtful Accounts, how much should the Bad Debt Expense entry be?
If Duncan Company estimates bad debts at 5% and has a previous balance of €2,000 in the Allowance for Doubtful Accounts, how much should the Bad Debt Expense entry be?
What is the overall effect on the Allowance for Doubtful Accounts when an adjustment is made for Bad Debt Expense of €25,810 with an initial credit balance of €800?
What is the overall effect on the Allowance for Doubtful Accounts when an adjustment is made for Bad Debt Expense of €25,810 with an initial credit balance of €800?
In which scenario would Bad Debt Expense not be recorded?
In which scenario would Bad Debt Expense not be recorded?
How should the journal entries for Bad Debt Expense be classified in the accounting records?
How should the journal entries for Bad Debt Expense be classified in the accounting records?
Which of the following best describes the purpose of the Allowance for Doubtful Accounts?
Which of the following best describes the purpose of the Allowance for Doubtful Accounts?
What is the purpose of disclosing fair value of receivables?
What is the purpose of disclosing fair value of receivables?
Which statement best describes the accounts receivable turnover ratio?
Which statement best describes the accounts receivable turnover ratio?
Which of the following is a key aspect of managing cash transactions?
Which of the following is a key aspect of managing cash transactions?
What is indicated by the concentration of credit risk in receivables?
What is indicated by the concentration of credit risk in receivables?
What does the imprest petty cash system manage?
What does the imprest petty cash system manage?
Which type of bank account is often used to enhance cash controls?
Which type of bank account is often used to enhance cash controls?
What is measured by the liquidity of receivables?
What is measured by the liquidity of receivables?
What should be appropriately offset for impaired receivables?
What should be appropriately offset for impaired receivables?
What type of account is affected by the adjustment for estimated bad debts?
What type of account is affected by the adjustment for estimated bad debts?
After collecting $333 on account, what is the impact on Accounts Receivable?
After collecting $333 on account, what is the impact on Accounts Receivable?
What does the Allowance for Doubtful Accounts do in accounting?
What does the Allowance for Doubtful Accounts do in accounting?
How much did the company estimate as an adjustment for bad debts on July 29?
How much did the company estimate as an adjustment for bad debts on July 29?
What is the effect on Allowance for Doubtful Accounts after writing off uncollectible accounts for $10?
What is the effect on Allowance for Doubtful Accounts after writing off uncollectible accounts for $10?
What is the balance of Accounts Receivable at the end after collecting $333 and adjusting for bad debts?
What is the balance of Accounts Receivable at the end after collecting $333 and adjusting for bad debts?
What was the beginning balance for Allowance for Doubtful Accounts?
What was the beginning balance for Allowance for Doubtful Accounts?
If an adjustment for bad debts is made, what account is credited?
If an adjustment for bad debts is made, what account is credited?
What is the ending balance of Accounts Receivable after writing off uncollectible accounts of $10?
What is the ending balance of Accounts Receivable after writing off uncollectible accounts of $10?
What is the net value of Accounts Receivable reported on the statement of financial position?
What is the net value of Accounts Receivable reported on the statement of financial position?
Which method of accounting for uncollectible accounts estimates losses based on a percentage of sales?
Which method of accounting for uncollectible accounts estimates losses based on a percentage of sales?
Why is the Direct Write-Off Method considered theoretically deficient?
Why is the Direct Write-Off Method considered theoretically deficient?
How is the balance in the Allowance for Doubtful Accounts adjusted?
How is the balance in the Allowance for Doubtful Accounts adjusted?
Which of the following is NOT a reason for maintaining an Allowance for Doubtful Accounts?
Which of the following is NOT a reason for maintaining an Allowance for Doubtful Accounts?
What is reflected as a credit loss in the Allowance Method?
What is reflected as a credit loss in the Allowance Method?
According to accounting principles, which method becomes necessary when bad debts are material?
According to accounting principles, which method becomes necessary when bad debts are material?
Study Notes
Notes Issued at Face Value
- A note issued at face value has a par value of $10,000.
- The interest is calculated by multiplying the principal by the interest % (10%) for 3 years.
- The present value of the interest is $2,487.
- The present value of the note's principal is $7,513.
- The present value of the note is $10,000.
- The journal entry for the note is a debit to Notes Receivable and a credit to Cash for the amount of the note.
- The journal entry for the interest received is a debit to Cash and a credit to Interest Revenue for the amount of interest earned.
Zero-Interest-Bearing Notes
- Jeremiah Company receives a zero-interest-bearing note for $10,000.
- The note has a market rate of 9% interest.
- Jeremiah records the receipt of the note by debiting Notes Receivable and crediting Cash for the amount of the note.
Allowance for Doubtful Accounts
- To ensure proper accounting, there are specific accounting methods for uncollectible accounts receivable.
- The direct write- off method is theoretically deficient because it doesn't record expenses as incurred and the receivable is not stated at cash realizable value.
- Under the allowance method, losses are estimated, using two primary approaches: "percentage-of-sales" and "percentage-of-receivables."
- There is a journal entry for the amount of estimated bad debts recorded; debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts.
Analysis of Receivables
- The accounts receivable turnover ratio is used to measure how many times, on average , a company collects its receivables during a given period.
Cash Controls
- Companies use various techniques to control cash transactions including using bank accounts, lockbox systems, petty cash, and imprest bank accounts.
Using Bank Accounts
- Businesses can vary the type, number, and location of bank accounts to better meet their control objectives.
- This might include establishing a general checking account, collection float, lockbox accounts, and imprest bank accounts.
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Description
This quiz covers accounting concepts related to notes issued at face value, zero-interest-bearing notes, and the allowance for doubtful accounts. It examines how to record these transactions in journals and the financial implications of different types of notes. Test your understanding of these essential accounting principles.
