Question

1.As interest payments are received on a note receivable, companies eliminate the difference between the original payment and the face value of the note. Which of the following terms describes this process?

		Calculation of net realizable value.
		Determination of carrying value.
		Amortization.
		Depreciation.

2.Based on our discussions, why was the Allowance for Bad Debt created?

		To record the amount of accounts receivable written off during the period.
		To record the net amount of accounts receivable that will be paid.
		To record the amount of accounts receivable that will most likely never be paid.
		To record the net sales amount from the last period that will probably never be paid.

3. Which of the following is NOT a difference we discussed between accounts and notes receivable?

		Notes Receivable include interest.
		Notes Receivable are based on sales made.
		Notes Receivable are due on a specific date.
		Notes Receivable require a formal contract.

Answer 1

Before answering the question let us understand the term accounts and notes receivable

Notes Receivable:A note receivable is usually received in result of granting a loan to someone or from a debtor who has previously bought some goods or services on credit and has not yet made the payment. An interese income is earnes on such receivables and such income is credited to profit and loss account.

Accounts receivable:Accounts receivable also known as debtors is the value of sales that has been made but hasn’t been paid for yet i.e. goods or services that have been bought by customers on credit.

As interest payments are received on a note receivable, companies eliminate the difference between the original payment and the face value of the note. Which of the following terms describes this process?

Answer: Determination of carrying value.

the Allowance for Bad Debt created because To record the net amount of accounts receivable that will be paid.

The difference between account receivable and notes receivable does not include

Notes Receivable are based on sales made.