Multiple Choice
A note that calls for payment of interest only is called a/an:
7. Receivables and Investments
Notes Receivable
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Which of the following represents contractual loans to corporations and governments?
A
Accounts payable
B
Prepaid expenses
C
Common stock
D
Notes receivable
Verified step by step guidance1
Understand the concept of 'Notes Receivable': Notes receivable are financial instruments that represent a written promise for a corporation or government to pay a specific amount of money at a future date. These are considered contractual loans.
Differentiate between the options provided: Accounts payable represent liabilities owed by a company, prepaid expenses are assets paid in advance for future benefits, and common stock represents ownership in a corporation. None of these options involve contractual loans.
Focus on the correct option: Notes receivable are the only option that directly represents a contractual loan to corporations or governments, as they involve a formal agreement to repay borrowed funds.
Relate notes receivable to financial accounting: In accounting, notes receivable are recorded as assets on the balance sheet because they represent amounts owed to the company by external entities.
Conclude the reasoning: Based on the definitions and characteristics of the options, notes receivable is the correct answer as it aligns with the concept of contractual loans.
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