If a 5%,four-Month Note Receivable Is Acquired from a Customer

question 4

Multiple Choice

If a 5%,four-month note receivable is acquired from a customer in settlement of an existing account receivable of $50,000,the accounting entry for acquisition of the note will:

• A)Include a debit to Notes Receivable for $50,822.
• B)Include a debit to Notes Receivable for $50,208.
• C)Include a credit to Interest Revenue for $822.
• D)Include a debit to Notes Receivable for $50,000 and no entry for interest.

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Definitions:

Accounting

Process of measuring, interpreting, and communicating financial information to support internal and external business decision making.

Risk-Return Trade-Off

The principle that potential return rises with an increase in risk, describing the balance between the desire for the lowest possible risk and the highest possible returns.

Leverage

The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

Hedge Fund Advantage

A benefit unique to hedge funds, often referring to their ability to employ diverse and complex strategies to achieve higher returns compared to traditional investment vehicles.