Notes Receivable

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 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 byname.

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 d. $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
Rise 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
EXERCISES

1. Strickman Company uses the allowance method for estimating

uncollectible accounts. Prepare journal entries to record the following
transactions:

January 5 Sold merchandise to Sue Land for $1,800, terms n/15.

April 15 Received $400 from Sue Land on account.
August 21 Wrote off as uncollectible the balance of the Sue Land
account when she declared bankruptcy.
October 5 Unexpectedly received a check for $650 from Sue Land.

1. Compute the maturity value as indicated for each of the following

note’s receivable.
A. A $9,000, 6%, 3-month note dated July 20.
Maturity values $____________.

B. A $16,000, 9%, 150-day note dated August 5.

Maturity values $____________.

2. Merry Co. sells Christmas angels. Merry determines that at the end of
December, they have the following aging schedule of Accounts
Receivable:
Number of Days Past Due
Customer Total Not yet due 1–30 31–60 61–
90 Over 90
K. Brant $500 $300 $200
D. Eaton 300 100 200
S Klein 150 50 100
C. Sheen 200 200

? 300 300 250 200 100

%uncollectible 1% 5% 10% 25% 50%
Total Estimated Uncollectible
Amounts ? ? ? ? ? ?

(a) Compute the total estimated uncollectible amounts.

(b)Compute the net receivables based on the above information at the
end of December (There was no beginning balance in the Allowance
for Doubtful Accounts).

3. An entity sells goods either on a cash basis or on a 6-month installment

basis. On January 1, 20x1, goods with a cash price of ₱50,000 were sold at
an installment price of ₱75,000. Which of the following statements is correct?

a. Net receivable of ₱75,000 is recognized on the date of sale.

b. Net receivable of ₱50,000 is recognized upon full payment of the total

price.

c. The ₱20,000 difference between the cash price and installment price is
recognized as interest income on the date of sale.

d. Net receivable of ₱50,000 is recognized on the date of sale.

4. An entity sells goods for ₱150,000 to a customer who was granted a

special credit period of 1 year. The entity normally sells the goods for
₱120,000 with a credit period of one month or with a ₱10,000 discount for
outright payment in cash. How much is the initial measurement of the
receivable if the entity does not use the practical expedient allowed under
PFRS 15?

a. 150,000 b. 130,00

c. 120,000 d. 110,00

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold transportation equipment with a historical

cost of ₱1,000,000 and accumulated depreciation of ₱300,000 in exchange
for cash of ₱100,000 and a noninterest-bearing note receivable of ₱800,000
due on January 1, 20x4. The prevailing rate of interest for this type of note is
12%.

5. How much is the interest income in 20x1?

a. 68,331
b. 76,532

c. 85,714

d. 96,000

6. How much is the carrying amount of the receivable on December 31,

20x2?

a. 800,000

b. 569,424

c. 637,755

d. 714,28

Use the following information for the next three questions:

On January 1, 20x1, Mojo Co. sold transportation equipment with a historical

cost of ₱20,000,000 and

accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000

and a noninterest-bearing note receivable of ₱8,000,000 due in 4 equal
annual installments starting on December 31, 20x1 and every December 31
thereafter. The prevailing rate of interest for this type of note is 12%.

[Link] much is the interest income in 20x1?

a. 728,946

b. 678,334

c. 728,964

d. 704,236

[Link] much is the current portion of the receivable on December 31, 20x1?

a. 1,271,036

b. 1,423,560

c. 3,380,102

d. 1,594,388

[Link] much is the carrying amount of the receivable on December 31, 20x2?

a. 4,803,663
b. 3,380,103

c. 6,074,699

d. 6,000,000

Use the following information for the next three questions:

On January 1, 20x1, ABC Co. sold transportation equipment with a historical

cost of ₱12,000,000 and accumulated depreciation of ₱7,000,000 in
exchange for cash of ₱100,000 and a noninterest bearing note receivable of
₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1
and every January 1 thereafter. The prevailing rate of interest for this type of
note is 12%.

[Link] much is the income of interest in 20x1?

a.408,230 b. 278,334

c. 328,964 d. 288,220

[Link] much is the carrying amount of the receivable on December 31,

20x1?

a. 1,690,510

b. 892,857

c. 2,690,051

d. 1,594,388

[Link] much is the carrying amount of the receivable on January 1, 20x3?

a. 892,857

b. 3,380,102

c. 6,074,699

d. 6,000,000

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold machinery with historical cost of

₱3,000,000 and accumulated depreciation of ₱900,000 in exchange for a 3-
year, ₱2,100,000 noninterest-bearing note receivable due in equal semi-
annual payments every July 1 and December 31 starting on July 1, 20x1. The
prevailing rate of interest for this type of note is 10%.

[Link] much is the interest income in 20x1?

a. 88,825

b. 177,649

c. 128,964

d. 164,591

[Link] much is the carrying amount of the receivable on December 31,

20x1?

a. 1,241,083

b. 982,378

c. 1,690,051

d. 1,594,388

[Link] January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with
accumulated depreciation of ₱1,100,000 in exchange for a 3-year, ₱900,000
noninterest-bearing note receivable due as follows:

Date Amount of
installment

December 31, 20x1 400,000

December 31, 20x2 300,000

December 31, 20x3 200,000

Total 900,000

The prevailing rate of interest for this type of note is 10%. How much is the
carrying amount of the receivable on December 31, 20x1?

a. 467,354 b. 438,016

c. 376,345 d. 428,346

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list
price of ₱2,200,000 and a
cash price of ₱2,000,000 in exchange for a ₱2,400,000 noninterest-bearing
note due on December 31 20x3.

[Link] much is the initial measurement of the receivable?

a. 1,800,000 b. 2,200,000

c. 2,000,000 d. 2,400,000

[Link] much is the carrying amount of the receivable on December 31,

20x1?

a. 2,125,390

b. 2,135,341

c. 2,098,343

d. 2,000,00

18. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with
accumulated depreciation of ₱1,100,000 in exchange for a 3-year,
₱900,000 noninterest-bearing note receivable due as follows:

Date Amount of installment

December 31, 20x1 400,000

December 31, 20x2 300,000

December 31, 20x3 200,000

Total 900,000

The prevailing rate of interest for this type of note is 10%. How much is the
carrying amount of the receivable on December 31, 20x1?

a. 467,354

b. 438,016

c. 376,345

d. 428,346
Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list
price of ₱2,200,000 and a cash price of ₱2,000,000 in exchange for a
₱2,400,000 noninterest bearing note due on December 31, 20x3.

19. How much is the initial measurement of the receivable?

a. 1,800,000

b. 2,200,000

c. 2,000,000

d. 2,400,000

20. How much is the carrying amount receivable on December 31, 20x1?

a. 2,125,390

b. 2,135,341

c. 2,098,343

d. 2,000,000