Question 1

A promissory note is usually referred to as a "note."

Accepted Answer

A) True 
 B)False

Question 2

Match the terms with the definitions.
-The difference between the maturity value of the notes receivable and the bank discount. This is the amount of cash received by the business discounting the note.

Accepted Answer

A)  accrued interest on notes payable
B)  time
C)  proceeds (note receivable) 
D)  principal of the note
E)  notes payable registerF) credit adviceG) maturity valueH) discounting a note receivableI) dishonoredJ) effective rateK) promissory noteL) makerM) F) and K)
N) E) and I)

Question 3

When a company pays an interest-bearing note payable on the due date, the journal entry on the books of the company making the payment includes

Accepted Answer

A)   debiting Notes Payable and Interest Expense and crediting Cash.
B)   debiting Cash and crediting Notes Payable and Interest Expense.
C)   debiting Notes Payable and Cash and crediting Interest Revenue.
D)   debiting Cash and Interest Expense and crediting Notes Payable.E) A) and B)
F) B) and C)

Question 4

In preparing the financial statements at the end of the year, the account Accrued Interest Payable is reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 5

If the maker of a note does not pay or renew a note at maturity, the note is said to be

Accepted Answer

A)   dishonored.
B)   discounted.
C)   discontinued.
D)   dismantled.E) A) and B)
F) A) and D)

Question 6

The person who promises to pay a certain amount of money at a definite future time is called the

Accepted Answer

A)   maker of the note.
B)   payee of the note.
C)   discounter of the note.
D)   endorser of the note.E) None of the above
F) All of the above

Question 7

Match the terms with the definitions.
-The amount that the bank deducts from the face of a note.

Accepted Answer

A)  term of the note
B)  accrued interest on notes receivable
C)  bank discount (note payable) 
D)  bank discount (note receivable) 
E)  contingent liabilityF) rate of interestG) discounting (note payable) H) payeeI) notes receivable registerJ) non-interest-bearing noteK) interest-bearing noteL) G) and K)
M) A) and B)

Question 8

To obtain an extension of time for the payment of an account, a customer may issue a note for all or part of the amount due.

Accepted Answer

A) True 
 B)False

Question 9

The net amount received from the bank on a discounted note receivable is called the proceeds.

Accepted Answer

A) True 
 B)False

Question 10

If the time of the note is stated in days, the due date is the specified number of days after the issue date.

Accepted Answer

A) True 
 B)False

Question 11

The journal entry for accrued interest on a note payable includes

Accepted Answer

A)   crediting Interest Expense.
B)   debiting Accrued Interest Receivable and crediting Interest Revenue.
C)   debiting Accrued Interest Payable and crediting Interest Expense.
D)   debiting Interest Expense and crediting Accrued Interest Payable.E) All of the above
F) C) and D)

Question 12

In preparing the financial statements at the end of the year, the balance in the interest receivable account will be reported on the balance sheet as a current asset.

Accepted Answer

A) True 
 B)False

Question 13

Match the terms with the definitions.
-A detailed auxiliary record of notes payable.

Accepted Answer

A)  accrued interest on notes payable
B)  time
C)  proceeds (note receivable) 
D)  principal of the note
E)  notes payable registerF) credit adviceG) maturity valueH) discounting a note receivableI) dishonoredJ) effective rateK) promissory noteL) makerM) I) and K)
N) G) and I)

Question 14

Match the terms with the definitions.
-Interest revenue that has been earned but not yet received.

Accepted Answer

A)  term of the note
B)  accrued interest on notes receivable
C)  bank discount (note payable) 
D)  bank discount (note receivable) 
E)  contingent liabilityF) rate of interestG) discounting (note payable) H) payeeI) notes receivable registerJ) non-interest-bearing noteK) interest-bearing noteL) A) and B)
M) C) and H)

Question 15

Match the terms with the definitions.
-The months or days from the date of issue to the date of maturity.

Accepted Answer

A)  term of the note
B)  accrued interest on notes receivable
C)  bank discount (note payable) 
D)  bank discount (note receivable) 
E)  contingent liabilityF) rate of interestG) discounting (note payable) H) payeeI) notes receivable registerJ) non-interest-bearing noteK) interest-bearing noteL) A) and C)
M) B) and E)

Question 16

When a note is received from a customer to obtain an extension of time for payment on a past-due account, the journal entry would include

Accepted Answer

A)   debiting Accounts Receivable and crediting Notes Receivable.
B)   debiting Accounts Payable and crediting Notes Payable.
C)   debiting Notes Payable and crediting Accounts Payable.
D)   debiting Notes Receivable and crediting Accounts Receivable.E) C) and D)
F) All of the above

Question 17

Match the terms with the definitions.
-The specific person or business to whom a note is payable.

Accepted Answer

A)  term of the note
B)  accrued interest on notes receivable
C)  bank discount (note payable) 
D)  bank discount (note receivable) 
E)  contingent liabilityF) rate of interestG) discounting (note payable) H) payeeI) notes receivable registerJ) non-interest-bearing noteK) interest-bearing noteL) C) and H)
M) A) and B)

Question 18

A debit balance in the discount on notes payable account will normally become a debit to Interest Expense.

Accepted Answer

A) True 
 B)False

Question 19

Match the terms with the definitions.
-A note which the maker does not pay or renew at maturity.

Accepted Answer

A)  accrued interest on notes payable
B)  time
C)  proceeds (note receivable) 
D)  principal of the note
E)  notes payable registerF) credit adviceG) maturity valueH) discounting a note receivableI) dishonoredJ) effective rateK) promissory noteL) makerM) None of the above
N) B) and L)

Question 20

Match the terms with the definitions.
-The face amount of the note that the maker promises to pay at maturity. The base on which interest is calculated.

Accepted Answer

A)  accrued interest on notes payable
B)  time
C)  proceeds (note receivable) 
D)  principal of the note
E)  notes payable registerF) credit adviceG) maturity valueH) discounting a note receivableI) dishonoredJ) effective rateK) promissory noteL) makerM) C) and K)
N) F) and G)

Exam 17: Accounting for Notes and Interest

If the time of the note is stated in days, the due date is the specified number of days after the issue date.

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When a company pays an interest-bearing note payable on the due date, the journal entry on the books of the company making the payment includes

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Match the terms with the definitions. -A detailed auxiliary record of notes payable.

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A promissory note is usually referred to as a "note."

Correct AnswerverifiedShow Answer

Match the terms with the definitions. -The specific person or business to whom a note is payable.

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The net amount received from the bank on a discounted note receivable is called the proceeds.

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If the maker of a note does not pay or renew a note at maturity, the note is said to be

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In preparing the financial statements at the end of the year, the account Accrued Interest Payable is reported on the income statement.

Correct AnswerverifiedShow Answer

Match the terms with the definitions. -The difference between the maturity value of the notes receivable and the bank discount. This is the amount of cash received by the business discounting the note.

Correct AnswerverifiedShow Answer

To obtain an extension of time for the payment of an account, a customer may issue a note for all or part of the amount due.

Correct AnswerverifiedShow Answer

Match the terms with the definitions. -The face amount of the note that the maker promises to pay at maturity. The base on which interest is calculated.

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A debit balance in the discount on notes payable account will normally become a debit to Interest Expense.

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The journal entry for accrued interest on a note payable includes

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Match the terms with the definitions. -The months or days from the date of issue to the date of maturity.

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When a note is received from a customer to obtain an extension of time for payment on a past-due account, the journal entry would include

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Match the terms with the definitions. -Interest revenue that has been earned but not yet received.

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In preparing the financial statements at the end of the year, the balance in the interest receivable account will be reported on the balance sheet as a current asset.

Correct AnswerverifiedShow Answer

The person who promises to pay a certain amount of money at a definite future time is called the

Correct AnswerverifiedShow Answer

Match the terms with the definitions. -A note which the maker does not pay or renew at maturity.

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Match the terms with the definitions. -The amount that the bank deducts from the face of a note.

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