Jeff Company Issues a Promissory Note to David Company to Get

question 123

Multiple Choice

Jeff Company issues a promissory note to David Company to get extended time on an account payable. Jeff Company records this transaction as follows:

• A) debit Accounts Receivable; credit Notes Receivable.
• B) debit Notes Receivable; credit Accounts Receivable.
• C) debit Notes Payable; credit Accounts Payable.
• D) debit Accounts Payable; credit Notes Payable.

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Definitions:

Risk-Free Asset

An asset that supposedly carries no risk of financial loss and is expected to return its full value along with known interest or dividends.

Risky Asset

A financial instrument whose future returns are uncertain and subject to a wide variety of outcomes.

Capital Allocation Line

A graphical representation used in finance to show possible rates of return for portfolios with different levels of risk.

Lending Rate

The interest rate charged by banks on loans extended to clients.