1. Which is not a correct description of the term related to discounting of note receivable?

A. maturity value is the sum of principal and interest up to maturity date

B. discount is the amount of interest deducted by the bank in advance

C. discount period is the period from date of note to date of discounting

D. net proceeds is the difference between maturity value and discount

E. none of the above

2. A note receivable bearing a reasonable interest rate is sold to a bank with recourse. If the sale is accounted as conditional sale, at the date of discounting, the note receivable discounted account shall be:

A. decreased by net proceeds from discounting

B. increased by net proceeds from discounting

C. increased by the face value of note

D. decreased by the face value of note

E. none of the above

3. In the lender's point of view, which item shall be added to the principal amount of loan to determine its carrying value?

A. direct origination costs

B. Indirect origination costs

C. origination costs charged to borrower

D. A and B

E. A, B and C

4. Notes receivable discounted is presented in the balance sheet as

A. part of contingent liability

B. part of current liabilities

C. a reduction of notes receivable

D. Other noncurrent assets

5. When accounts receivable is factored:

A. A/R should be credited

B. payable to factor is credited

C. a contingent liability is ordinarily created

D. the factoring is accounted for as a borrowing

6. What is the treatment of direct origination costs incurred in connection with loans receivables?

A. charged directly to retained earnings

B. included in profit or loss

C. part of the initial carrying amount of loan receivable and amortized using the effective interest method

D. part of the initial carrying amount of loan receivable and amortized using the straight line method

7. After being held for 60 days, a 120 day 12% interest bearing note receivable was discounted at a bank at 15%. The proceeds from the bank equal to:

A. maturity value less the discount at 12%

B. maturity value less the discount at 15%

C. face value less the discount at 12%

D. face value less the discount at 15%

E. none of the above

8. Which is not true? When a customer's note is discounted at a bank, the ____ is said to be the _____ of the note.

A. customer, maker

B. company, payee

C. company, endorser

D. bank, endorsee

E. none of the above

9. The following are methods of generating cash from accounts receivable, except

A. pledge

B. assignment

C. factoring

D. discounting

E. none of the above

10. Discounting of customer's note is a transaction where the endorser is free from any obligation in case the maker dishonors the note at maturity date.

A. without recourse

B. with recourse accounted for as conditional sale

C. with recourse accounted for as secured borrowing

D. any of A, B or C

E. answer not given