Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 14, Problem 14.11Q
When a note’s stated rate of interest is unrealistic relative to the market rate, the concept of substance over form should be employed. Explain.
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What is “imputed interest”? In what situations is it necessary to impute an interest rate for notes receivable? What are the considerations in imputing an appropriate interest rate?
Please clarify the difference between the stated interest rate on notes receivable and the market interest rate, as well as premiums and discounts...? I'm stumped as to why that notion is eluding me.
TRUE OR FALSE:
An implicit or imputed rate of interest must be used when long-term notes are issued at a stated rate of interest that is materially different from the market rate of interest.
Chapter 14 Solutions
Intermediate Accounting, 10 Ed
Ch. 14 - How is periodic interest determined for...Ch. 14 - As a general rule, how should long-term...Ch. 14 - How are bonds and notes the same? How do they...Ch. 14 - What information is contained in a bond indenture?...Ch. 14 - How is the price determined for a bond (or bond...Ch. 14 - A zero-coupon bond pays no interest. Explain.Ch. 14 - Prob. 14.8QCh. 14 - Compare the two commonly used methods of...Ch. 14 - Prob. 14.10QCh. 14 - When a notes stated rate of interest is...
Ch. 14 - How does an installment note differ from a note...Ch. 14 - Prob. 14.13QCh. 14 - Prob. 14.14QCh. 14 - Air Supply issued 6 million of 9%, 10-year...Ch. 14 - Both convertible bonds and bonds issued with...Ch. 14 - Prob. 14.17QCh. 14 - Cordova Tools has bonds outstanding during a year...Ch. 14 - If a company prepares its financial statements...Ch. 14 - (Based on Appendix 14A) Why will bonds always sell...Ch. 14 - Prob. 14.21QCh. 14 - Prob. 14.22QCh. 14 - Prob. 14.23QCh. 14 - Bank loan; accrued interest LO132 On October 1,...Ch. 14 - Non-interest-bearing note; accrued interest LO132...Ch. 14 - Determining the price of bonds LO142 A company...Ch. 14 - Determining the price of bonds LO142 A company...Ch. 14 - Effective interest on bonds LO142 On January 1, a...Ch. 14 - Effective interest on bonds LO142 On January 1, a...Ch. 14 - Straight-line interest on bonds LO142 On January...Ch. 14 - Investment in bonds LO142 On January 1, a company...Ch. 14 - Note with unrealistic interest rate LO143 On...Ch. 14 - Installment note LO143 On January 1, a company...Ch. 14 - Prob. 14.12BECh. 14 - Bonds with detachable warrants LO145 Hoffman...Ch. 14 - Convertible bonds LO145 Hoffman Corporation...Ch. 14 - Prob. 14.22ECh. 14 - Prob. 14.36ECh. 14 - Prob. 14.14PCh. 14 - Prob. 14.17PCh. 14 - Prob. 14.21PCh. 14 - Prob. 14.3DMP
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- A discounted note will produce an effective rate which is different than the stated rate. Why does this occur?arrow_forwardWhat is the impact of changes in interest rates on the accounting for variable-rate promissory notes?arrow_forwardIn hedging, interest rate swap (IRS) can be used to hedge against rising rates, falling rates, manage asset-liability durationgaps, protecting revenue and lock-in cost of borrowing. True/Falsearrow_forward
- In hedging, interest rate swap (IRS) can be used to hedge against rising rates, falling rates, manage asset-liability durationgaps, protecting revenue and lock-in cost of borrowing.arrow_forwardWhat is the difference between a bond and a note? How do the accounting treatments differ?arrow_forwardWhich of the following is true? Short-term notes payable should be discounted at its present value, more so, if it constitutes a financing transaction and the imputed interest can be measured without undue cost or effort. Transaction costs of issuing financial liabilities are expensed outright. The present value of a serial note's principal is computed by using the PV of 1 as the present value factor. Notes payable are obligations supported by creditor's promissory notes.arrow_forward
- Which of the following is false about the discount on short-term notes payable? The Discount on Notes Payable account has a debit balance. The Discount on Notes Payable account should be reported as an asset on the balance sheet. If there is a discount on notes payable, the effective interest rate is higher than the stated discount rate. All of these are truearrow_forwardWhat is the difference between cap rate and discount rate? Explain in detail and no plagiarism .arrow_forwardThe interest on a non-interest bearing note is equal to a. The excess of the face value over the present value. b. The excess of the present value over the face value. c. The excess of the present value over the market value of the note. d. Zero.arrow_forward
- Notes receivable should be stated at amortized cost which is equivalent to its present value which may be its face or discounted value for long term interest bearing and or long term interest bearing with unreasonably low interest rate. TRUE OR FALSEarrow_forwardBank charges is an example of a timing difference. True or False Interest on overdraft is an example of a timing difference. True or Falsearrow_forwardWhen the market interest rate on a short-term note receivable is greater than the stated rate, ________. Group of answer choices the present value of the note is greater than its stated value the stated value of the note is greater than its face value the stated value of the note is less than its face value the present value of the note is less than its face valuearrow_forward
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