Indicate whether each of the following statements is true or false.________ a) Loaning cash to another company is considered a financing activity on the statement of cash flows.________ b) The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest.________ c) In a promissory note, the payee issues the note to the maker.________ d) Interest rates are always stated on an annual basis, regardless of the length of the note.________ e) Accruing interest on a note receivable is considered an asset use transaction.
What will be an ideal response?
a) F b) T c) F d) T e) F
a) This is false. Loaning cash to another company is considered an investing activity on the statement of cash flows.
b) This is true. Interest is charged on a note receivable, while it is not customary on accounts receivable.
c) This is false. The payee is the party that accepts the note, not the party that issues the note.
d) This is true. Interest rates are expressed on an annual basis, even if, for example, the term of the note is 18 months.
e) This is false. Accruing interest on a note receivable is an asset source, not use, transaction that increases assets (interest receivable) and increases stockholders' equity (retained earnings) by increasing interest revenue, which increases net income.
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