College Accounting, 14e (Slater)
Chapter 14 Notes Receivable and Notes Payable
14.1 Learning Objective 14-1
1) A written promise to pay a certain sum of money to another person or company is a(n):
A) Accounts Payable.
B) Note Payable.
C) Accounts Receivable.
D) Note Receivable.
2) John borrowed $1,030 from Melanie. John promised in writing that he would repay the money to
Melanie on April 21, 201X. At the time of the loan, Melanie records the transaction as a(n):
A) Accounts Receivable.
B) Accounts Payable.
C) Note Receivable.
D) Note Payable.
3) An advantage of a promissory note receivable over an account receivable is that it:
A) establishes formal proof against the borrower.
B) has a specified interest rate and maturity date.
C) collects interest revenue from the borrower.
D) All of these answers are correct.
4) A promissory note from the payee’s point of view is a(n):
A) Notes Receivable.
B) Notes Payable.
C) Accounts Receivable.
D) Accounts Payable.
5) The person or company promising to pay the note plus interest when it comes due is known as the
A) drawee.
B) creditor.
C) maker.
D) payee.
6) Jane borrowed $1,000 from West Bank and signed a promissory note. West Bank is:
A) the payee.
B) the drawee.
C) the drawer.
D) the maker.
7) Feinstein Analytics is borrowing $12,400 at 8% interest for one year. The $12,400 is the:
A) principal.
B) proceeds.
C) amount of interest.
D) net amount.
8) Interest due on a $21,000, 4%, 125–day note is: (Use a 360-day year. Do not round any intermediate
calculations. Round your final answer to the nearest dollar.)
A) $21,000.
B) $21,292.
C) $292.
D) $840.
9) Sarah borrowed $2,200 from Cassandra. Sarah promised in writing that she would repay the money to
Cassandra on June 18, 201X. At the time of the loan, Sarah records the transaction as a(n):
A) Accounts Receivable.
B) Accounts Payable.
C) Note Payable.
D) Note Receivable.
10) Interest due on a $26,000, 11%, 2.5-year note is: (Do not round any intermediate calculations. Round
your final answer to the nearest dollar.)
A) $2,860.
B) $33,150.
C) $7,150.
D) $26,000.
11) The due date of a promissory note is known as the:
A) discount date.
B) issue date.
C) interest note.
D) maturity date.
12) The basic formula for calculating the interest on a note is:
A) Interest = Principal × Rate × Time.
B) Interest = (Principal × Rate) – Time.
C) Interest = (Principal × Time) + Rate.
D) Interest = Principal × Rate/ Time.
13) The principal amount on a $1,800, 4%, 60-day promissory note is: (Do not round any intermediate
calculations. Round your final answer to the nearest cent.)
A) $12.00
B) $1,800
C) $72
D) $1,812.00
14) Principal refers to:
A) the amount of interest to be paid.
B) the original amount – the discount.
C) the original amount loaned or borrowed.
D) the maturity value.
15) Interest calculated for one year on a $10,000, 6% promissory note is:
A) $6.00.
B) $600.
C) $60.
D) some other amount.
16) Interest on a $3,000, 5% promissory note for six months is:
A) $75.
B) $7.50.
C) $750.
D) $0.75.
17) Using a 360-day year, interest calculated for 90 days on a $9,000, 6% promissory note is:
A) $135.
B) $540.
C) $405.
D) some other amount.
18) Given a 360-day year, the interest expense on a $2,000, 6%, 90–day promissory note payable is: (Do not
round any intermediate calculations.)
A) $30.
B) $120.
C) $90.
D) some other amount.
19) Interest due on a $21,000, 11%, 10-month note is: (Do not round any intermediate calculations. Round
your final answer to the nearest dollar.)
A) $1,925
B) $2,310
C) $22,925
D) $21,000
20) The maturity date for a 94-day note dated April 19 is:
A) July 21.
B) July 16.
C) July 22.
D) July 24.
21) The maturity date for a four-month note dated May 31 is:
A) September 1.
B) September 30.
C) September 31.
D) October 1.
22) Interest due on a $7,000, 10%, 9-month note is:
A) $525.
B) $7,000.
C) $7,525.
D) $6,475.
23) The maturity date during a leap year for a 95-day note dated February 2 is:
A) May 8.
B) May 6.
C) May 7.
D) May 5.
24) In the interest calculation formula, time is expressed:
A) in days only.
B) in years or fraction of a year.
C) in months only.
D) in years only.
25) A $10,000, 5% note is dated July 6 and is due in 120 days. Using a 360-day year, the interest payment
would be: (Do not round any intermediate calculations. Round your final answer to the nearest dollar.)
A) $250.
B) $500.
C) $333.
D) $167.
26) Millionaires Bank accepts a promissory note for $4,000 from a customer on February 1, to be repaid in
eight months plus 8% interest. The interest due on the note is: (Do not round any intermediate
calculations. Round your final answer to the nearest dollar.)
A) $213.
B) $320.
C) $107.
D) $160.
27) The formula for calculating interest on a note is: principal × rate × time.
28) Notes Payable is a formal promise to pay.
29) The maturity date of a 60-day note dated March 8 is May 8.
30) The interest payment for a $24,000, 84-day note at 8% interest is $24,448.
31) The payee is the party to whom the note is payable.
32) The due date of a promissory note is the maturity date.
33) A note is also called a promissory note.
34) The maker accepts payment on a note from a payee.
35) A 90-day note dated July 9 would be due on October 7.
36) The interest payment for a $17,000, 67-day note at 10% interest is $316.39.
37) Calculate the simple interest for the following:
a) $13,500, 11%, 112 days
b) $8,200, 6%, 5 months
c) $19,250, 7.5%, 1 year
38) Find the maturity dates for the following:
a) A 95-day note dated February 18, no leap year.
b) A 5-month note dated June 30.
c) A 1-year note dated April 10, 2018.
39) On April 4, Noreen Cox negotiated a $14,000 bank loan for 240 days at an interest rate of 6%.
Required (show your calculations):
a) Determine the maturity date of the note.
b) Calculate the amount of interest charged by the bank.
40) Scott Moore is considering accepting a $10,000, 60-day, 12% promissory note from Cory Gregor to
extend additional time to settle a past-due account. Discuss some of the reasons why Moore would accept
a promissory note from Cory Gregor.
41) Describe (a) the function of a promissory note and (b) explain its various parts and features.
14.2 Learning Objective 14-2
1) Additional time given to the payee to settle an account with issuance of a note, results in a transfer of:
A) assets from Notes Receivable to Accounts Receivable.
B) assets from Accounts Receivable to Notes Receivable.
C) liabilities from Notes Payable to Accounts Payable.
D) liabilities from Accounts Payable to Notes Payable.
2) A buyer pays a note in full on its maturity date. The buyer would record a:
A) debit to Cash; credit to Interest Income; credit to Notes Receivable.
B) debit to Interest Expense; credit to Cash; credit to Notes Payable.
C) debit to Notes Receivable; credit to Cash; credit to Interest Income.
D) debit to Interest Expense; debit to Notes Payable; credit to Cash.
3) Martin Company needs additional time to pay its accounts payable to Boster Company. Martin makes
a written promise to pay Boster the amount on a certain date. Martin records this transaction as follows:
A) debit Notes Payable; credit Accounts Payable.
B) debit Cash; credit Accounts Payable.
C) debit Accounts Payable; credit Notes Payable.
D) debit Notes Payable; credit Cash.
4) Brooke Company grants James Decorating additional time to pay its past due account. James makes a
written promise to pay Brooke the amount on a certain date. Brooke Company records this transaction as
follows:
A) debit Notes Receivable; credit Accounts Receivable.
B) debit Cash; credit Accounts Receivable.
C) debit Accounts Receivable; credit Notes Receivable.
D) debit Accounts Payable; credit Notes Payable.
5) Jeff Company issues a promissory note to David Company to get extended time on an account payable.
Jeff Company records this transaction as follows:
A) debit Accounts Receivable; credit Notes Receivable.
B) debit Notes Receivable; credit Accounts Receivable.
C) debit Notes Payable; credit Accounts Payable.
D) debit Accounts Payable; credit Notes Payable.
6) ________ is a current liability and ________ is a current asset on the balance sheet.
A) Accounts Payable; Notes Payable
B) Accounts Receivable; Notes Receivable
C) Notes Payable; Notes Receivable
D) Notes Receivable; Notes Payable
7) Failure of maker to pay the maturity value of a note when due is considered a(n):
A) honored note.
B) equipment exchange.
C) default.
D) None of the above.
8) On April 3, Angel Express issued a 12%, 90-day, $14,000 promissory note. Angel Express should record
the payment of the note on the maturity day as: (Use a 360-day year. Do not round any intermediate
calculations. Round your final answers to the nearest dollar.)
A) debit Notes Payable $14,420; credit Cash $14,420.
B) debit Notes Payable $14,000; debit Interest Expense $420; credit Cash $14,420.
C) debit Notes Payable $14,000; debit Interest Payable $420; credit Cash $14,420.
D) debit Notes Payable $14,000; credit Cash $14,000.
9) Straight Company sold merchandise to Cross Company and received a promissory note from Cross.
Straight should record the transaction as:
A) debit Notes Receivable and credit Sales for the principal amount of the note.
B) debit Notes Receivable and credit Sales for the maturity value of the note.
C) debit Accounts Receivable and credit Sales for the maturity amount of the note.
D) debit Accounts Receivable and credit Sales for the principal amount of the note.
10) Tricia’s Decor purchased merchandise from House Beautiful and issued a promissory note. Tricia
should record the transaction as:
A) debit Purchases and credit Notes Payable for the principal amount of the note.
B) debit Purchases and credit Notes Payable for the maturity value of the note.
C) debit Purchases and credit Accounts Payable for the face amount of the note.
D) debit Purchases and credit Accounts Payable for the maturity value of the note.
11) Barrel Enterprises was unable to collect a $1,900 note receivable plus $80 interest on the maturity date,
but hoped to collect the amount in the future. Barrel Enterprises should record this event on the maturity
date as:
A) debit Bad Debts Expense $1,900; credit Notes Receivable $1,900.
B) debit Allowance for Doubtful Accounts $1,980; credit Notes Receivable $1,980.
C) debit Accounts Receivable $1,900; debit Interest Income $80; credit Cash $1,980.
D) debit Accounts Receivable $1,980; credit Interest Income $80; credit Notes Receivable $1,900.
12) A note renewed at maturity would have the following effects for a seller:
A) debit to Notes Receivable (new); debit to Notes Receivable (old); credit to Cash; credit to Interest
Income.
B) debit to Notes Receivable (old); debit to Cash; debit to Notes Receivable (new); credit to Interest
Income.
C) debit to Notes Receivable (new); debit to Cash; credit to Notes Receivable (old); credit to Interest
Income.
D) debit to Notes Receivable (old); debit to Interest Income; credit to Notes Receivable (new); credit to
Cash.
13) A note renewed at maturity would have the following effects for a buyer:
A) debit to Notes Payable (new); debit to Notes Payable (old); credit to Cash; credit to Interest Expense.
B) debit to Notes Payable (old); debit to Cash; credit to Notes Payable (new); credit to Interest Expense.
C) debit to Notes Payable (old); credit to Notes Payable (new); credit to Cash; credit to Interest Expense.
D) debit to Notes Payable (old); debit to Interest Expense; credit to Cash; credit to Notes Payable (new).
14) If a buyer pays off an interest-bearing note at maturity, Interest Income would increase for the buyer.
15) To obtain an extension of time for the payment of an account, a customer may issue a note for any
portion of the amount due.
16) When a buyer receives a time extension by giving the seller a note, Accounts Payable is debited for
the buyer.
17) When an account receivable is exchanged for a note receivable, a shift in liability occurs.
18) A seller may accept a note from a buyer as a result of an exchange for an equipment purchase.
19) Prepare the journal entries for Shirts Plus for the following transactions:
a) Shirts Plus sold $8,100 of merchandise to Beck Company on account. The cost of the sale to Shirts Plus
is $4,500. The company uses the periodic method.
b) Shirts Plus received a 60-day, $8,100, 9% note for a time extension of past-due account of Beck
Company.
c) Collected Beck Company’s note on the maturity date.
20) Prepare the journal entries for the following transactions for Dobson Industries Company.
a) Dobson sold $8,000 of merchandise to Bolt Imports Company on account. The company uses the
periodic inventory method.
b) Dobson accepted a 90-day, 7% note from Bolt in settlement of its account.
c) Bolt defaulted on its note on the maturity date.
d) Collected the previously defaulted Bolt note plus $25 additional interest.
21) Prepare journal entries for the following transactions for Design Imports.
a) Purchased $7,800 of merchandise (perpetual inventory method) from Serial Material Company on
account.
b) Gave Serial Material Company a 120-day, 5% note in settlement of the account payable.
c) Design Imports defaulted on its note on the maturity date.
d) Design Imports paid the previously defaulted note plus $115 additional interest.
22) Prepare journal entries for the following transactions for Mission Company:
June 1 Purchased equipment from Carry, Inc. for $9,400, giving a 3-month, 10% note
Sept. 1 Paid amount due on note
14.3 Learning Objective 14-3
1) The process of endorsing a note and transferring it to a financial institution is known as:
A) dishonoring a note receivable.
B) discounting a note receivable.
C) cosigning a note receivable.
D) collecting a note receivable.
2) When a note receivable is discounted, the business that endorses the note becomes potentially liable to
the bank. This type of liability is called a:
A) dependent liability.
B) contingent liability.
C) potential liability.
D) conditional liability.
3) A $2,800, 10% note dated March 12 for 80 days was discounted on May 2 at 12%. The number of days
in the discount period (using a 365-day year) is:
A) 51 days.
B) 80 days.
C) 29 days.
D) some other number.
4) A $5,600, 8% note dated May 20 for 78 days was discounted on June 23 at 14%. The amount of the
discount (using a 360-day year) is: (Do not round any intermediate calculations. Round your final answer
to the nearest cent.)
A) $98.73.
B) $171.53.
C) $100.01.
D) $97.47.
5) The proceeds from discounting a note receivable are the:
A) principal + bank discount.
B) maturity value – bank discount.
C) principal – bank discount.
D) maturity value minus principal.
6) The discount period on a discounted note is:
A) the same as the original period of the note.
B) the time between the original date and the discount date.
C) the time between the discount date and the maturity date.
D) the original note period minus 10 days.
7) The amount the bank charges when it discounts a note is calculated as:
A) bank discount = note principal × bank discount rate × (discount period /360 days).
B) bank discount = maturity value × bank discount rate × (original note period /360 days).
C) bank discount = maturity value × bank discount rate + original interest rate × (discount period /360
days).
D) bank discount = maturity value × bank discount rate × (discount period /360 days).
8) Canton Graphics issues a $22,000, 10%, 8–month note to Bowden Corporation. Interest on the note is
_________ and the maturity value is __________. (Do not round any intermediate calculations. Round
your final answers to the nearest dollar.)
A) $1,467; $22,000
B) $1,467; $23,467
C) $23,467; $1,467
D) $22,000; $1,467