Question

A company lends its supplier $152,000 for 3 years at a 8% annual interest rate. Interest payments are to be made twice a year. The entry to record this lending transaction includes a debit to:

Cash and a credit to Notes Payable for $152,000.

Notes Receivable and a credit to Cash for $152,000.

Interest Receivable and a credit to Interest Revenue for $6,080.

Cash and a credit to Interest Revenue for $12,160.

On July 1, 2016, Empire Inc. lends $18,000 to a customer and receives a 10% note due in two years. Interest is due in full on July 1, 2018, the due date of the note. What is the amount of Interest Revenue that will be reported on Empire’s income statement for the year ended December 31, 2016?

$1,800.

$1,050.

$900.

$3,600.

On the maturity date of a $6,600, 9-month, 12% note, the borrower sends a check that includes the principal and all of the interest due on the note. What is the amount of the borrower’s check?

$13,728

$6,600

$7,194

$7,392

Countryside Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 2% of net credit sales will not be collected. In conformity with the expense recognition principle, the company should:

record an estimate of Bad Debt Expense in the same period as the lawn care is provided.

not report the sales revenue until it collects payment.

increase the value of its liabilities with an adjustment.

wait until the accounts are determined to be uncollectible before making an entry to record the related Bad Debt Expense.

  

The adjusting entry to record the estimated bad debts in the period credit sales occur would normally include a debit to:

Accounts Receivable and a credit to Allowance for Doubtful Accounts.

Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

Allowance for Doubtful Accounts and a credit to Accounts Receivable.

Bad Debt Expense and a credit to Accounts Receivable.

On the balance sheet, the Allowance for Doubtful Accounts:

is included in current liabilities.

increases the reported Accounts Receivable, Net.

is reported under the heading "Other Assets."

is subtracted from Accounts Receivable.

ABC Corp. received a 3-month, 8% per year, $1,500 note receivable on December 1. The adjusting entry on December 31 will include a:

debit to Interest Revenue of $10

credit to Interest Receivable of $20

credit to Interest Revenue of $30

debit to Interest Receivable of $10

Answer 1