Note Payable MCQs
What is a note payable?
a) A written agreement to pay a specific amount of money on a specific date
b) A type of promissory note used for short-term financing
c) A long-term debt obligation issued by a company
d) A form of equity financing for small businesses
Answer: b) A type of promissory note used for short-term financing
Which of the following is true about a note payable?
a) It represents a company’s ownership interest in another company
b) It is classified as a liability on the balance sheet
c) It is an expense incurred in the production of goods or services
d) It is recorded as revenue when received
Answer: b) It is classified as a liability on the balance sheet
How is interest on a note payable calculated?
a) It is a fixed percentage of the principal amount
b) It is determined based on the company’s net income
c) It is determined by the market rate of interest
d) It is waived if the note is paid before the due date
Answer: c) It is determined by the market rate of interest
When is a note payable considered short-term?
a) When the repayment period is less than one year
b) When the repayment period is between one to three years
c) When the repayment period is greater than three years
d) When the interest rate is fixed
Answer: a) When the repayment period is less than one year
Note Payable MCQs with Answers
How is a note payable recorded in the accounting books?
a) Debit to Cash, credit to Notes Payable
b) Debit to Notes Payable, credit to Cash
c) Debit to Interest Expense, credit to Notes Payable
d) Debit to Notes Payable, credit to Interest Expense
Answer: b) Debit to Notes Payable, credit to Cash
What happens when a note payable matures?
a) The borrower receives additional funds
b) The note is canceled and no further payments are required
c) The lender can demand full repayment of the principal and any accrued interest
d) The interest rate on the note increases
Answer: c) The lender can demand full repayment of the principal and any accrued interest
What is the impact of a note payable on a company’s financial statements?
a) It increases assets and decreases liabilities
b) It decreases assets and increases liabilities
c) It increases both assets and liabilities
d) It has no impact on the financial statements
Answer: c) It increases both assets and liabilities
What is the difference between a note payable and accounts payable?
a) A note payable is a long-term debt, while accounts payable is a short-term debt
b) A note payable requires interest payments, while accounts payable does not
c) A note payable is a written agreement, while accounts payable is an oral agreement
d) A note payable is recorded as a liability, while accounts payable is recorded as an expense
Answer: a) A note payable is a long-term debt, while accounts payable is a short-term debt
Note Payable MCQs with Answers
What is the purpose of disclosing notes payable in the financial statements?
a) To provide information about the company’s cash flows
b) To comply with accounting regulations and standards
c) To attract potential investors and creditors
d) To track the company’s inventory levels
Answer: b) To comply with accounting regulations and standards
What is the difference between a secured and unsecured note payable?
a) A secured note payable requires collateral, while an unsecured note payable does not.
b) A secured note payable has a higher interest rate than an unsecured note payable.
c) A secured note payable is recorded as revenue, while an unsecured note payable is recorded as an expense.
d) There is no difference between a secured and unsecured note payable.
Answer: a) A secured note payable requires collateral, while an unsecured note payable does not.
What is the purpose of discounting a note payable?
a) To decrease the principal amount of the note payable.
b) To increase the interest expense associated with the note payable.
c) To accelerate the repayment of the note payable.
d) To determine the present value of the future cash flows associated with the note payable.
Answer: d) To determine the present value of the future cash flows associated with the note payable.
How does a note payable affect a company’s cash flow statement?
a) It is classified as an operating activity.
b) It is classified as an investing activity.
c) It is classified as a financing activity.
d) It does not impact the cash flow statement.
Answer: c) It is classified as a financing activity.
Note Payable MCQs with Answers
What is the difference between a note payable and a bond payable?
a) A note payable has a fixed interest rate, while a bond payable has a variable interest rate.
b) A note payable is issued by individuals, while a bond payable is issued by corporations.
c) A note payable has a shorter maturity period than a bond payable.
d) There is no difference between a note payable and a bond payable.
Answer: c) A note payable has a shorter maturity period than a bond payable.
How does the issuance of a note payable impact a company’s debt-to-equity ratio?
a) It increases the debt-to-equity ratio.
b) It decreases the debt-to-equity ratio.
c) It has no impact on the debt-to-equity ratio.
d) It depends on the interest rate associated with the note payable.
Answer: a) It increases the debt-to-equity ratio.
What is the journal entry to record the payment of a note payable at maturity?
a) Debit Notes Payable, credit Cash.
b) Debit Cash, credit Notes Payable.
c) Debit Interest Expense, credit Notes Payable.
d) Debit Notes Payable, credit Interest Expense.
Answer: b) Debit Cash, credit Notes Payable.
Can a note payable be converted into equity?
a) Yes, through a process called debt-to-equity conversion.
b) No, a note payable can only be repaid in cash.
c) Yes, if the note payable is secured by collateral.
d) No, equity conversion is only possible for bonds, not notes payable.
Answer: a) Yes, through a process called debt-to-equity conversion.
Note Payable MCQs with Answers
What is the difference between a demand note payable and a term note payable?
a) A demand note payable has a shorter repayment period than a term note payable.
b) A term note payable requires interest payments, while a demand note payable does not.
c) A demand note payable can be paid back at any time, while a term note payable has a fixed repayment schedule.
d) There is no difference between a demand note payable and a term note payable.
Answer: c) A demand note payable can be paid back at any time, while a term note payable has a fixed repayment schedule.