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Chapter 10 Objective Questions

True/False
Indicate whether the statement is true or false.

____ 1. Interest rates on notes receivable are generally stated in terms of days, since most notes receivable are for 90
days or less.
____ 2. When unearned revenue is recorded, the amount to be received in the future is not yet known.
____ 3. If a business accepts a large number of notes receivable, it may maintain a separate ledger, similar to the
accounts receivable ledger.
____ 4. The Adequate Disclosure concept is being applied when businesses report accurate and up-to-date
information about notes receivable and accrued revenue on their financial statements at the end of a fiscal
period.
____ 5. By transferring the maturity value of a dishonored note from a customer to Accounts Receivable, the business
has a complete credit history on the customer's transactions.
____ 6. If a customer signs a note allowing 90 days for payment and pays no cash up front, the transaction is recorded
in the cash receipts journal.
____ 7. A note that is not paid when due is called an overdue note.
____ 8. If unearned revenue is first recorded as a liability, no adjusting or reversing entry is required.
____ 9. The steps used to record a dishonored note receivable are: (1) calculate the interest income; (2) record the
debit for the total amount receivable; (3) record the credit for the note principal; and (4) record the credit for
the interest income.
____ 10. A common use of a note receivable is when a business borrows money from the bank to pay vendors.
____ 11. After closing entries are posted, the amount in the interest income account will be zero.
____ 12. A company may issue notes receivable to employees.
____ 13. When the note receivable from a customer is not paid when it comes due, the business transfers the maturity
value of the note to the accounts receivable account.
____ 14. For the accounting records at the end of the year to be accurate, a business sends a billing statement to all
customers with notes receivable outstanding for the amount of interest income due on December 31.
____ 15. If the maturity date of a note is in a fiscal period that is different from the date of the note, an adjusting entry
will be needed at the end of the fiscal period.
____ 16. Additional interest is charged on a dishonored note receivable from the maturity date of the note to the date
payment is received.
____ 17. The Historical Cost concept is being applied when a company includes in its Notes Receivable balance in the
financial statements only the amount of notes receivable that the business expects to collect.
____ 18. The Matching Expenses with Revenue concept is being applied when special accounting procedures are
implemented so that the correct amount of revenue earned in the fiscal period is recognized in the financial
statements.
____ 19. When a business has only a few notes receivable outstanding, it records a separate adjusting entry for the
accrued interest on each note.
____ 20. A note receivable accepted for the sale of electronic equipment when no cash is received up front would be
recorded as a debit to Notes Receivable and a credit to Sales.
____ 21. Interest Income earned on notes receivable is classified in the financial statements as Other Revenue.
____ 22. After closing entries have been posted, the balance in Interest Receivable will be zero.
____ 23. Most companies use a 365 day year to calculate interest on notes receivable, even in a leap year.
____ 24. The reversing entry recorded on January 1 of the next year is the exact opposite of the adjusting entry
recorded on December 31 of the current year.
____ 25. Unearned revenue is initially recorded either as a liability or as an expense.
____ 26. The two types of revenue that require special accounting procedures at the end of a fiscal period are (1)
revenue received in one fiscal period but not earned until the next fiscal period, and (2) revenue earned in one
fiscal period that was received in an earlier fiscal period.
____ 27. The reversing entry for unearned revenue initially recorded as a revenue is a debit to the liability account and
a credit to the revenue account.
____ 28. When a note receivable is dishonored, the debt can no longer be collected and is treated as an uncollectible
account.
____ 29. To recognize the unearned revenue earned during the year, an adjusting entry is recorded.
____ 30. Since notes receivable are generally due within a year, they are classified as current liabilities in the financial
statements.
____ 31. The interest on a 90-day, 10%, $2,000.00 note receivable is $200.00.
____ 32. When a business actually receives cash in advance for rent, the amount is recorded as either a liability or a
revenue.
____ 33. The maturity date of a 60-day note receivable issued on December 27 is February 25.
____ 34. Promissory notes that a business accepts from customers are notes payable.
____ 35. Expenses paid in one fiscal period but not reported as expenses until a later fiscal period are prepaid expenses.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

June 3. Regent Co. accepts a 30-day, 10% note from AutoWorld for an extension of time on its account,
$600.00. Notes Receivable No. 22.

____ 36. Refer to the Regent Co. Scenario. The debit for this transaction would be made to ____.
a. Accounts Payable c. Notes Payable
b. Accounts Receivable d. Notes Receivable
____ 37. Refer to the Regent Co. Scenario. Assuming the $600.00 represents the entire amount owed by AutoWorld,
the balance of Accounts Receivable after this transaction has been posted is ____.
a. $0 c. $60.00
b. $5.00 d. $600.00
____ 38. Refer to the Regent Co. Scenario. This transaction would be recorded in the ____.
a. cash receipts journal c. general journal
b. cash payments journal d. sales journal
____ 39. On May 26, a 30-day, 10% note receivable for $900.00 is due. The maturity value of the note is ____.
a. $7.50 c. $907.50
b. $900.00 d. $990.00

On May 18, Silverton Company dishonored Note Receivable No. 16, a 30-day, 9% note with a principal of
$500.00. On July 2, Silverton pays the full amount due on the note receivable. Receipt No. 104.

____ 40. Refer to the Silverton Company Scenario. The entry to record the dishonoring of the note is recorded in the
____.
a. cash receipts journal c. general journal
b. cash payments journal d. sales journal
____ 41. Refer to the Silverton Company Scenario. The entry on July 2 would be recorded in the ____.
a. cash receipts journal c. general journal
b. cash payments journal d. sales journal
____ 42. Refer to the Silverton Company Scenario. The total amount due on May 18 was ____.
a. $500.00 c. $545.00
b. $503.75 d. $550.00
____ 43. If a company initially records rent income received in advance as unearned rent, a reversing entry ____.
a. will be needed
b. will not be needed
c. may or may not be needed
d. is only needed if the account is closed
____ 44. On December 1, Augustus Property Management Group received $12,000.00 for three months rent
(December through February) from Goya Company. Augustus records the amount as rent income. The
adjusting entry on December 31 to recognize unearned rent would be ____.
a. a debit to Unearned Rent and a credit to Rent Income for $4,000.00
b. a debit to Rent Income and a credit to Unearned Rent for $4,000.00
c. a debit to Unearned Rent and a credit to Rent Income for $8,000.00
d. a debit to Rent Income and a credit to Unearned Rent for $8,000.00
____ 45. On December 31, Placesettings, Inc. has one note receivable outstanding. It is a 60-day, 10% note for
$750.00, dated December 16. The amount of accrued interest recorded in the adjusting entry is ____.
a. $3.12 c. $9.38
b. $3.13 d. $12.50

Oct. 15. Weston, Inc. , accepts a 60-day, 11% note from Roma Imports for an extension of time on its account,
$990.00. Notes Receivable No. 6.

____ 46. Refer to the Weston Inc. Scenario. The credit for this transaction would be made to ____.
a. Accounts Payable c. Notes Payable
b. Accounts Receivable d. Notes Receivable
____ 47. Refer to the Weston Inc. Scenario. This transaction would be recorded in the ____.
a. cash receipts journal c. general journal
b. cash payments journal d. sales journal
____ 48. Refer to the Weston Inc. Scenario. The effect of this transaction on the customer's account in the accounts
receivable ledger is ____.
a. to decrease the account balance c. no change in the account balance
b. to increase the account balance d. not known
____ 49. On February 18, a 30-day, 9% note receivable for $300.00 is due. The interest income from the note is ____.
a. $0.30 c. $27.00
b. $2.25 d. $300.00

On August 1, Hawthorne Limited dishonored Note Receivable No. 86, a 60-day, 10% note with a principal of
$1,200.00. On September 30, Hawthorne pays the full amount due on the note receivable. Receipt No. 79.

____ 50. Refer to the Hawthorne Limited Scenario. The total amount due on August 1 was ____.
a. $1,200.00 c. $1,240.00
b. $1,220.00 d. $1,320.00
____ 51. Refer to the Hawthorne Limited Scenario. The balance in Hawthorne Limited's accounts receivable ledger
account after the note was dishonored is ____.
a. $0 c. $1,220.00
b. $1,200.00 d. $1,320.00
____ 52. Refer to the Hawthorne Limited Scenario. The amount of additional interest received from Hawthorne
Limited on September 30 is ____.
a. $10.00 c. $20.00
b. $10.17 d. $20.33
____ 53. On December 1, The Oxnard Group received $6,000.00 for three months rent (December through February)
from Sarvis, Inc. Oxnard records the amount as unearned rent. The adjusting entry on December 31 to
recognize the rent income would be ____.
a. a debit to Unearned Rent and a credit to Rent Income for $2,000.00
b. a debit to Rent Income and a credit to Unearned Rent for $2,000.00
c. a debit to Unearned Rent and a credit to Rent Income for $4,000.00
d. a debit to Rent Income and a credit to Unearned Rent for $4,000.00
____ 54. On December 31, one of the adjusting entries debits Interest Receivable and credits Interest Income for the
amount of accrued interest income. On January 1, a reversing entry ____.
a. will be needed c. may or may not be needed
b. will not be needed d. is only needed if an account is closed
____ 55. After adjusting and closing entries have been posted, Interest Receivable has an $8.50 debit balance
representing accrued revenue. On January 1, the reversing entry ____.
a. is not needed
b. is a debit to Interest Receivable and a credit to Interest Income for $8.50
c. is a debit to Interest Income and a credit to Interest Receivable for $8.50
d. is a debit to Interest Expense and a credit to Interest Receivable for $8.50
____ 56. Rent received in advance is a liability until the rented space is actually ____.
a. paid for c. rented
b. used d. none of the above
____ 57. At the end of a fiscal period, a business must show how much rent received in advance has become ____.
a. an expense c. an asset
b. a revenue d. a liability
____ 58. When a business actually receives cash in advance for rent, and initially records unearned revenue as revenue,
the account credited is ____.
a. Cash c. Notes Receivable
b. Rent Income d. Rent Expense
____ 59. The interest on a 3-month, 10%, $2,000.00 note receivable is ____.
a. $25.00 c. $24.66
b. $100.00 d. $50.00
____ 60. Recording an adjusting entry for accrued interest income is an application of the accounting concept ____.
a. Objective Evidence c. Consistent Reporting
b. Historical Cost d. Matching Expenses with Revenue
Chapter 10 Objective Questions
Answer Section

TRUE/FALSE

1. ANS: F PTS: 1
2. ANS: F PTS: 1
3. ANS: T PTS: 1
4. ANS: T PTS: 1
5. ANS: T PTS: 1
6. ANS: F PTS: 1
7. ANS: F PTS: 1
8. ANS: F PTS: 1
9. ANS: T PTS: 1
10. ANS: F PTS: 1
11. ANS: T PTS: 1
12. ANS: T PTS: 1
13. ANS: T PTS: 1
14. ANS: F PTS: 1
15. ANS: T PTS: 1
16. ANS: T PTS: 1
17. ANS: F PTS: 1
18. ANS: T PTS: 1
19. ANS: F PTS: 1
20. ANS: T PTS: 1
21. ANS: T PTS: 1
22. ANS: F PTS: 1
23. ANS: F PTS: 1
24. ANS: T PTS: 1
25. ANS: F PTS: 1
26. ANS: F PTS: 1
27. ANS: T PTS: 1
28. ANS: F PTS: 1
29. ANS: T PTS: 1
30. ANS: F PTS: 1
31. ANS: F PTS: 1
32. ANS: T PTS: 1
33. ANS: T PTS: 1
34. ANS: F PTS: 1
35. ANS: T PTS: 1

MULTIPLE CHOICE

36. ANS: D PTS: 1


37. ANS: A PTS: 1
38. ANS: C PTS: 1
39. ANS: C PTS: 1
40. ANS: C PTS: 1
41. ANS: A PTS: 1
42. ANS: B PTS: 1
43. ANS: B PTS: 1
44. ANS: D PTS: 1
45. ANS: B PTS: 1
46. ANS: B PTS: 1
47. ANS: C PTS: 1
48. ANS: A PTS: 1
49. ANS: B PTS: 1
50. ANS: B PTS: 1
51. ANS: C PTS: 1
52. ANS: D PTS: 1
53. ANS: A PTS: 1
54. ANS: A PTS: 1
55. ANS: C PTS: 1
56. ANS: B PTS: 1
57. ANS: B PTS: 1
58. ANS: B PTS: 1
59. ANS: A PTS: 1
60. ANS: D PTS: 1