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    Janelle101's Avatar
    Janelle101 Posts: 60, Reputation: 1
    Junior Member
     
    #1

    Jul 14, 2010, 11:13 AM
    Notes & Interest
    Hi I understand school is closed for now but I found this while surfing and I am wondering if I am on the right track and please help::)

    True/FalseIndicate whether the sentence or statement is true or false.

    1. The Notes Payable account is always debited or credited for the face value of a note. TRUE
    Date of Borrowing -- The amount of cash or the value of the goods or services received is equal to the face value of the note
    a) Notes Payable -- The notes payable account is credited for the face value of the note.

    Date of Payment
    a) Notes Payable -- The notes payable account is debited for the face value of the note.

    2. The amount shown on a note is called the face value. TRUE
    The dollar amount written on the note is called the face value.

    3. The interest on a $4,000 face value, 3-month note bearing interest at 9 percent a year would be $1,080. FALSE
    $4,000 x 0.09 x 3/12 = 90

    4. A company that issued a 6-month note payable would report its face value on the balance sheet as a long-term liability. FALSE
    When a note is due in less than one year (or the operating cycle, if longer), it is commonly reported as a current liability.

    5. Interest Expense usually appears on the income statement as a non-operating expense. TRUE
    Interest expense is a non-operating expense because it involves the finance function of the business, rather than the primary activities of buying/producing and selling.

    6. The entry to record the issuance of a promissory note includes a credit to the Notes Payable account. TRUE
    Debit. Cash
    Credit. Notes Payable

    7. Upon payment of the amount due on a $3,000 face value, 60-day, 6 percent note, the accountant will record an entry that includes a debit to Notes Payable for $3,000.?

    8. Even if an interest-bearing note receivable is dishonored, interest income due on the note should be recorded. TRUE
    If the note is dishonored, then the company just has an account receivable
    Debit. Account Receivable
    Credit. Notes Receivable
    Credit. Interest Revenue

    9. When a note receivable is discounted, the proceeds are computed by subtracting the discount from the maturity value of the note. TRUE
    Proceeds = Maturity Value – Discount

    10. Interest earned on a promissory note is recorded by debiting the Interest Income account. FALSE
    Debit. Cash
    Credit. Notes Receivable
    Credit. Interest Income

    11. Interest Income is classified as a current asset. FALSE
    Most interest income is taxable and is classified as unearned income for the purposes of tax reporting.

    12. If the proceeds of a discounted note are less than the face amount, the difference is debited to Interest Expense.?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
    Uber Member
     
    #2

    Jul 18, 2010, 05:08 AM
    Long time, no see.

    Hi i understand school is closed for now but i found this while surfing and i am wondering if i am on the right track and please help::)
    Plenty of schools run through the summer. ;)

    7. Upon payment of the amount due on a $3,000 face value, 60-day, 6 percent note, the accountant will record an entry that includes a debit to Notes Payable for $3,000.?
    The answer is in #1. You stated yourself what one of the debits is.

    11. Interest Income is classified as a current asset. FALSE
    Most interest income is taxable and is classified as unearned income for the purposes of tax reporting.
    The "false" answer is correct; the reasoning is not. Unearned income is when someone has paid you something in advance and you still owe them a service or goods, etc. Interest income is something that is already earned, whether it has been paid. Receipt of payment is irrelevant to the question. If it's "interest income" then it's income, just like it says.

    12. If the proceeds of a discounted note are less than the face amount, the difference is debited to Interest Expense.?
    It's true. You debit cash for the proceeds, debit the expense for the discount and credit the note for the face value.

    The rest are all correct. Pretty good.
    Janelle101's Avatar
    Janelle101 Posts: 60, Reputation: 1
    Junior Member
     
    #3

    Jul 18, 2010, 06:02 AM

    morgaine300 thank you so much, I'm just surfing the net for past papers keeping myself occupied.

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