Question

34. Genuine Parts received a promissory note from a customer on March 1, 2016. The face amount of the note is $8,000, the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?

A) Increase cash $8,000; Decrease notes receivable $8,000

B) Increase cash $8,180; Increase interest revenue $180; Decrease notes receivable $8,000

C) Increase cash $8,720; Decrease notes receivable $8,000; Decrease interest revenue $720

D) No entry is required; the customer pays the amount due to the bank

35.Comfort Shoes received a promissory note from a customer on April 1, 2016. The face amount of the note is $2,000, the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2016?

A) $40

B) $107

C) $120

D) $160

36. What are the effects on the accounting equation from the purchase of a short-term investment?

A) Assets and stockholders’ equity decrease

B) No effects- assets increase and decrease by the same amount

C) Assets and liabilities decrease

D) Stockholders’ equity decrease and liabilities increase

37. Goodwill can be recorded as an asset when a(n)

A) business has above normal profitability compared to other businesses in its industry.

B) business can determine that it has created customer goodwill and name recognition.

C) offer is received to purchase the business at a price in excess of the value of the assets.

D) business is purchase and payment is made in excess of the value of the net assets.

Answer 1

34. Genuine Parts received a promissory note from a customer on March 1, 2016. The face amount of the note is $8,000, the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?

The entry would include debit to Cash (Cash being received=Cash increased), credit to Notes receivables (amount of note= decreased), and Credit to Interest revenue (increase) for 90 days.

Interest Revenue = 8000 x 9% x 90 days/ 360 days = $ 180

Hence, correct Answer =

B) Increase cash $8,180; Increase interest revenue $180; Decrease notes receivable $8,000

35.Comfort Shoes received a promissory note from a customer on April 1, 2016. The face amount of the note is $2,000, the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2016?

Interest revenue = 2000 x 8% x 9 months/12 months = $ 120 [1 April to 31 Dec = 9 months]

Correct Answer = C) $120

36. What are the effects on the accounting equation from the purchase of a short-term investment?

Correct Answer = Option B) No effects- assets increase and decrease by the same amount

37. Goodwill can be recorded as an asset when a(n)

Correct Answer = D) business is purchase and payment is made in excess of the value of the net assets.

Only purchased Goodwill is to be recorded, self generated goodwill is not recorded.