14) A 135-day note issued on May 17 will mature on:
A) September 28.
B) September 29.
C) September 30.
D) October 1.
15) An 83-day note issued on November 13, 2014 will mature on:
A) February 2, 2015.
B) February 3, 2015.
C) February 4, 2015.
D) February 5, 2015.
16) On September 1, 2013, Sharp Corp. lent $2,400 to Marla Smith on a 6-month 8% promissory
note. The journal entry to record the note for Sharp Corp. would be to:
A) debit Note Receivable/M Smith, $2,400; credit Cash, $2,400.
B) debit Note Receivable/M Smith, $2,496; credit Cash, $2,496.
C) debit Note Receivable/M Smith, $96; credit Interest Income, $96.
D) debit Cash, $2,400; credit Note Payable/M Smith, $2,400.
17) On September 1, 2013, Sharp Corp. lent $2,400 to Marla Smith on a 6-month 8% promissory
note. The amount of interest to be accrued on December 31 will be:
A) $192.
B) $128.
C) $96.
D) $64.
18) On March 1, 2014, Archer Inc. lent $3,500 to Ron Wood on a 1-year 6% promissory note.
The amount of interest to be accrued on December 31 will be:
A) $210.00.
B) $175.00.
C) $157.50.
D) $140.00.
19) On August 9, Alice paid $3,568 to Cyrus Corp. to fulfill her promissory note agreement. Of
the $3,568, $400 is interest. The journal entry Cyrus Corp. will record is to:
A) debit Cash, $3,568; credit Note Receivable/Alice, $3,568.
B) debit Cash, $3,568; credit Note Receivable/Alice, $3,168; credit Interest Revenue, $400.
C) debit Note Receivable/Alice, $3,568; credit Cash $3,168; credit Interest Revenue, $400.
D) debit Note Receivable/Alice, $3,568; credit Cash $3,568.
20) On March 15, Diego paid $4,750 to Island, Inc. to fulfill his promissory note agreement. Of
the $4,750, $750 is interest. The journal entry Island, Inc. will record is to:
A) debit Cash, $4,750; credit Note Receivable/Diego, $4,750.
B) debit Cash, $4,750; credit Note Receivable/Diego, $4,000; credit Interest Revenue, $750.
C) debit Note Receivable/Diego, $4,750; credit Cash $4,700; credit Interest Revenue $750.
D) debit Note Receivable/Diego, $4,750; credit Cash $4,750.
21) Magick, Inc. converted a $4,000 account receivable from Ronaldo to a 75-day, 8% note
receivable. The maturity value (assume a 360-day year) that will be due from Ronaldo in 75 days
(round to nearest dollar) is:
A) $4,000.
B) $4,067.
C) $4,320.
D) some other number.
22) TLR Corporation lent $25,000 to Blitz, Inc. for 75 days at 7% interest on November 22,
2013. How much interest will have accrued to TLR Corporation on December 31, 2013,
assuming a 360-day year?
A) $364.58
B) $189.58
C) $175.00
D) Some other number
23) A note is signed on April 15, 2013 at 9% for 216 days. The maturity date will be:
A) November 15.
B) November 16.
C) November 17.
D) November 18.
24) Using a 365-day year, the maturity value of a 55-day, 7% note for $23,000 rounded to the
nearest cent is:
A) $23,000.00.
B) $23,242.60.
C) $23,245.97.
D) $24,610.00.
25) A customer’s written promise to pay an amount of money to a business with interest is a(n)
________ of the business.
A) account receivable
B) account payable
C) note receivable
D) note payable
26) The formula: principle x rate x time represents
A) The amount charged for loaning money.
B) The amount of revenue to the creditor for loaning money.
C) The amount of expense to the debtor for borrowing money.
D) All of the above.
27) The entity that signs the note and promises to pay the required amount is referred to as:
A) maker of a note
B) payee of a note
C) debtor
D) both A and C
28) Principal is the amount loaned out by the ________ and borrowed by the ________.
A) payee of a note, creditor
B) maker of a note, payee of a note
C) debtor, maker of a note
D) payee of a note, maker of a note
29) The entity to whom the maker promises future payment is referred to as:
A) maker of a note.
B) creditor.
C) debtor.
D) both A and C.
7.7 Questions
1) Another name for the quick ratio is the acid-test ratio.
2) The formula for the quick ratio is quick assets divided by non-current assets.
3) Accounts Receivable turnover measures the ability to collect cash from a company’s credit
customers.
4) The account receivable turnover is computed by taking the average net Accounts Receivable
and dividing it by the net credit sales.
5) The receivables collection period measures the ability to collect cash from customers who buy
on credit.
6) Quick assets include cash, Accounts Receivable, and prepaid expenses.
7) Piper Inc. has cash of $56,000; net Accounts Receivable of $67,000; short-term investments
of $12,000 and inventory of $40,000. It also has $45,000 in current liabilities and $75,000 in
long-term liabilities. The quick ratio for Piper Inc. is:
A) 2.33.
B) 2.73.
C) 3.00.
D) 3.89.
8) Quicksilver Co. has cash of $33,000; net Accounts Receivable of $41,000; short-term
investments of $15,000 and inventory of $25,000. It also has $30,000 in current liabilities and
$50,000 in long-term liabilities. The quick ratio for Quicksilver Co. is:
A) 1.78.
B) 2.97.
C) 3.30.
D) 3.80.
9) Lionworks Company has cash of $143,000; net Accounts Receivable of $89,000; short-term
investments of $35,000 and prepaid expenses of $40,000. It also has $50,000 in current liabilities
and $80,000 in long-term liabilities. The quick ratio for Lionworks Company is:
A) 3.34.
B) 4.64.
C) 5.34.
D) 6.14.
10) Piper Inc. has cash of $56,000; net Accounts Receivable of $67,000; short-term investments
of $12,000 and inventory of $40,000. It also has $45,000 in current liabilities and $75,000 in
long-term liabilities. The current ratio for Piper Inc. is:
A) 2.73.
B) 3.00.
C) 3.62.
D) 3.89.
11) Quicksilver Co. has cash of $33,000; net Accounts Receivable of $41,000; short-term
investments of $15,000 and inventory of $25,000. It also has $30,000 in current liabilities and
$50,000 in long-term liabilities. The current ratio for Quicksilver Co. is:
A) 3.80.
B) 1.48.
C) 2.47.
D) 1.43.
12) Lionworks Company has cash of $143,000; net Accounts Receivable of $89,000; short-term
investments of $35,000 and prepaid expenses of $40,000. It also has $50,000 in current liabilities
and $80,000 in long-term liabilities. The current ratio for Lionworks Company is:
A) 5.44.
B) 6.14.
C) 5.34.
D) 4.64.
13) Gallego & Co. reported sales of $515,000; beginning net Accounts Receivable of $212,000
and ending net Accounts Receivable of $224,000. Gallego & Co.’s Accounts Receivable turnover
is:
A) 2.30.
B) 2.36.
C) 2.43.
D) 3.44.
14) Valdez Company reported sales of $343,000; beginning net Accounts Receivable of $89,000
and ending
net Accounts Receivable of $111,000. Valdez Company’s Accounts Receivable turnover is:
A) 4.61.
B) 3.85.
C) 3.43.
D) 3.09.
15) Gallego & Co. reported sales of $515,000; beginning net Accounts Receivable of $212,000
and ending net Accounts Receivable of $224,000. Gallego & Co.’s receivable collection period
(rounded to the nearest day) is:
A) 150.
B) 159.
C) 106.
D) 155.
16) Valdez Company reported sales of $343,000; beginning net Accounts Receivable of $89,000
and ending net Accounts Receivable of $111,000. Valdez Company’s receivable collection
period (rounded to the nearest day) is:
A) 106.
B) 79.
C) 118.
D) 95.
17) A company with an Accounts Receivable turnover of 11.78 would be collecting its
receivables about:
A) once a week.
B) once a month.
C) once a quarter.
D) once a year.
18) A company with a quick ratio of 1.23 means that the company:
A) has $1.00 in quick assets for every $1.23 in current liabilities.
B) has $1.23 in quick assets for every $1.00 in current liabilities.
C) could not pay off all of its current liabilities using quick assets.
D) would have to use inventory to help pay off its current liabilities.
19) If a company has n/90-credit terms, you would expect its Accounts Receivable turnover to
be:
A) 12.
B) 4.
C) 2.
D) 1.
20) A company with a current ratio of 2.75 means that the company:
A) has $2.75 of quick assets to pay each $1 of current liabilities.
B) has $2.75 of current assets to pay each $1 of current liabilities.
C) has $1.00 of quick assets for every $2.75 of current liabilities.
D) has $1.00 of current assets for every $2.75 of current liabilities.
21) A company with 5.6 Accounts Receivable turnover means that the company:
A) has a good Accounts Receivable turnover.
B) has a bad Accounts Receivable turnover.
C) needs to tighten its credit terms.
D) cannot be determined from the information provided.
7.8 Questions
1) A petty cash fund may be established for minor expenditures, such as postage.
2) A petty cash fund is established by making a check payable to Petty Cash, cashing the check,
and placing the funds in the cash register.
3) The journal entry to record the set-up of a petty cash fund is to debit Petty Cash and to credit
Cash.
4) The total of cash in the petty cash box plus the amount of the petty cash ticket receipts should
total the beginning amount of the petty cash fund.
5) Island Equipment has a petty cash fund of $350. At the end of the month, $7.89 remains in the
fund along with $340.56 in various receipts. The journal entry to replenish the fund would show
a debit(s) to:
A) various expenses for $340.56 and Cash short of $1.55.
B) various expenses for $340.56 and Cash over of $1.55.
C) Cash for $342.11.
D) Cash for $340.56.
6) DogCo has a petty cash fund of $275. At the end of the month, $14.37 remains in the fund
along with $269.43 in various receipts. The journal entry to replenish the fund would be to:
A) debit various expenses, $269.43; debit Cash Short for $8.80 and credit Cash for $278.23.
B) debit various expenses, $269.43; credit Cash Over for $8.80 and credit Cash for $260.63.
C) debit Petty Cash for $260.63 and credit Cash for $260.63.
D) debit various expenses, $269.43 and credit Cash for $269.43.
7) Aspen Inc. has a petty cash fund of $200. At the end of the month, $6.41 remains in the fund
along with $190.96 in various receipts. The journal entry to replenish the fund would show a
debit(s) to:
A) various expenses for $190.96 and Cash Short of $2.63.
B) various expenses for $190.96 and Cash Over of $2.63.
C) Cash for $190.96.
D) Cash for $193.59.
8) Leo Company has a petty cash fund of $300. At the end of the month, $42.38 remains in the
fund along with $260.75 in various receipts. The journal entry to replenish the fund would be:
A) debit Petty Cash for $257.62 and credit Cash for $257.62.
B) debit various expenses, $254.49; debit Cash Short for $3.13 and credit Cash for $257.62.
C) debit various expenses, $260.75; credit Cash Over for $3.13 and credit Cash for $257.62.
D) debit various expenses, $260.75 and credit Cash for $260.75.
9) Island Equipment wants to increase the size of its petty cash fund from $350 to $400. Island
Equipment will:
A) not be allowed to do this, $400 is too large for a petty cash fund.
B) debit Cash, $400; credit Petty Cash $400.
C) debit Petty Cash $400, credit Cash $400.
D) debit Petty Cash $50, credit Cash $50.
10) Stella Company wants to increase the size of its petty cash fund from $150 to $250, the
journal entry will be:
A) debit Petty Cash $250; credit Cash $250.
B) debit Cash $250; credit Petty Cash $250.
C) debit Petty Cash $100; credit Cash $100.
D) debit Cash $100; credit Petty Cash $100.