2024 – Question 1 A promissory note is not a formal credit instrument has

Question 1 

A promissory note

 

is not a formal credit instrument. 

has the party to whom the money is due as the maker. 

cannot be factored to another party. 

may be used to settle an accounts receivable.

 

Question 2 

Bad Debt Expense is considered

 

an avoidable cost in doing business on a credit basis. 

a necessary risk of doing business on a credit basis. 

avoidable unless there is a recession. 

an internal control weakness.

 

Question 3 

Major advantages of credit cards to the retailer include all of the following except the

 

issuer undertakes the collection process. 

retailer receives more cash from the credit card issuer. 

issuer does the credit investigation of customers. 

all of these are advantages.

 

Question 4 

A company that receives an interest bearing note receivable will

 

debit Notes Receivable for the face value of the note. 

credit Notes Receivable for the face value of the note. 

debit Notes Receivable for the maturity value of the note. 

credit Notes Receivable for the maturity value of the note.

 

Question 5 

The receivable that is usually evidenced by a formal instrument of credit is a(n)

 

note receivable. 

accounts receivable. 

income tax receivable. 

trade receivable.

 

Question 6 

Reck Company receives a $15,000, 3-month, 8% promissory note from Fey Company in settlement of an open accounts receivable. What entry will Reck Company make upon receiving the note?

 

 

Notes Receivable15,300 

 Accounts Receivable—Fey Company15,300

 

Notes Receivable15,000 

 Accounts Receivable—Fey Company15,000

 

Notes Receivable15,300 

 Accounts Receivable—Fey Company15,000

 Interest Revenue                               300

 

Notes Receivable15,000 

Interest Receivable300

 Accounts Receivable—Fey Company15,000

 Interest Revenue                              300

 

 

Question 7 

Jeff Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 2% for its credit card use. The entry to record this transaction by Jeff Retailers will include a credit to Sales Revenue of $75,000 and a debit(s) to

 

Accounts Receivable $73,500 and Service Charge Expense $1,500. 

Accounts Receivable $75,000. 

Cash $73,500 and Service Charge Expense $1,500.

Cash $73,500 and Interest Expense $1,500.

 

 

Question 8 

Schwartzman Co., makes a credit card sale to a customer for $800. The credit card sale has a grace period of 30 days and then an interest charge of 1.5% per month is added to the balance. If the unpaid balance on the above sale is $640 at the end of the grace period, the interest charge is

 

$11.00. 

$9.60.   

$6.40. 

$16.00.

 

Question 9 

Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what is the amount of bad debt expense for the period?

 

$7,000 

$38,000 

$45,000    

$31,000

 

Question 10 

In 2014, Warehouse 13 had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2014, $29,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $150,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014?

 

$31,000 

$28,000      

$29,000 

$150,000