21 the proceeds of a discounted note are the face value less the bank discount 22 on 4303170

 

21) The proceeds of a discounted note are the face value less the bank discount.

22) On June 1, Mike's Motorcycle Shop accepted a 120-day, 8%, $10,000 note from a customer from the sale of a motorcycle. On July 1, after 30 days, Mike discounted the note at First Bank at 10%. Record the journal entries for Mike's Motorcycles.

 

23) Chase Hunford negotiated a $40,000 bank loan for 240 days at a bank rate of 10%. The bank deducted the interest in advance.

Required (show your calculations):

a) Calculate the amount of interest charged by the bank.

b) Calculate the amount of cash Chase received from the bank.

c) Calculate the effective interest rate charged by the bank.

d) Prepare Chase's journal entry for the transaction.

 

14.4   Learning Objective 14-4

 

1) The adjusting entry for accrued interest on a notes receivable includes:

A) a debit to Interest Expense; a credit to Interest Revenue.

B) a debit to Accrued Interest Receivable; a credit to Interest Revenue.

C) a debit to Interest Revenue; a credit to Accrued Interest Payable.

D) a debit to Accrued Interest Receivable; a credit to Interest Payable.

2) There was no accrual for interest on a promissory note receivable; this error would cause:

A) the period end assets to be overstated.

B) the period end liabilities to be understated.

C) the period's net income to be overstated.

D) the period's net income to be understated.

 

3) When calculating the interest on a note receivable 365 days instead of 360 days was used. This error would cause:

A) the period end assets to be overstated.

B) the period end liabilities to be understated.

C) the period's net income to be overstated.

D) the period's net income to be understated.

 

4) When paying off a note payable, last year's accrual was ignored and the total interest was recorded as an expense. This error would cause:

A) the period end assets to be understated.

B) the period end liabilities to be understated.

C) the period's net income to be understated.

D) the period's net income to be overstated.

 

5) The accounting department forgot to adjust for interest on the note payable. This error would cause:

A) the period end assets to be understated.

B) the period end liabilities to be understated.

C) the period's net income to be understated.

D) None of these answers are correct.