Question 26:
Our company signed a 90-day 10% note for $100,000. Using a 360-day year, what is the total interest due on the maturity date?
A. $1,250.00
B. $1,562.50
C. $1,875.00
D. $2,500.00
Question 27:
Our company has an account receivable for $12,500 that we have now deemed uncollectible. We use the direct write-off method. Which of the following accounts would we credit to record the write-off?
A. Accounts Receivable
B. Allowance for Doubtful Accounts
C. Bad Debt Expense
D. Cash
Answer (2)
The total interest due on the maturity date of the 90-day note is $2,500 (Option D). Under the direct write-off method, for the uncollectible account, we would credit Accounts Receivable (Option A).
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Let's address each question one by one:
Question 26:
To calculate the total interest due on the maturity date for a 90-day, 10% note using a 360-day year, we can use the simple interest formula:
Interest = Principal × Rate × Time
Where:
Principal is $100,000
Rate is 10% or 0.10
Time is 90 days out of a 360-day year
Substitute the values into the formula:
Interest = 100 , 000 × 0.10 × 360 90
Simplify the calculation:
Interest = 100 , 000 × 0.10 × 0.25
Interest = 100 , 000 × 0.025
Interest = 2 , 500
Thus, the total interest due on the maturity date is $2,500.00.
The correct answer is (D) $2,500.00 .
Question 27:
When using the direct write-off method to record an uncollectible account, the appropriate entry involves writing off the specific account directly.
Since we have an account receivable for $12,500 that is deemed uncollectible, we need to eliminate it from our books.
Debit Bad Debt Expense for $12,500 to recognize the uncollectible amount.
Credit Accounts Receivable for $12,500 to remove that amount from the accounts receivable balance.
Therefore, the correct account to credit in this transaction is (A) Accounts Receivable .
