[Janelle101]

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]

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]

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