1. When a company exchanges a long-term non-interestbearing note for cash and no interest rate is stated, how does it determine the effective interest? 2. Describe the steps necessary for a company to determine the value at which to record a non-interest-bearing note payable exchanged for property, goods, or services.

1. When a company exchanges a long-term non-interestbearing note for cash and no interest rate is stated, how does it determine the effective interest? 2. Describe the steps necessary for a company to determine the value at which to record a non-interest-bearing note payable exchanged for property, goods, or services.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 24GI

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Long-Term Notes Payable Business transactions often involve the exchange of property, goods, or services for notes or similar instruments that may stipulate no interest rate or an interest rate that varies from prevailing rates. Required: 1. When a company exchanges a note for property, goods, or services, what value does it place on the note: a. if it bears interest at a reasonable rate and is issued in a bargained transaction entered into at arms length? Explain. b. if it bears no interest and/or is not issued in a bargained transaction entered into at arms length? Explain. 2. If the recorded value of a note differs from the face value, explain: a. how the company should account for the difference. b. how the company should present this difference in the financial statements.
When a business borrows money from a bank on a non-interest-bearing note, how are the bank discount and proceeds calculated?
Which of the following is true of a maturity date? A. It must be calculated in days, not in months or years. B. It is the date when principal and interest on a note are to be repaid to the lender. C. It is the date of establishment of note terms between a lender and customer. D. It is not a characteristic of a note receivable.
When does a company record the transfer of accounts receivable as a sale? As a secured borrowing (a liability)?
Which of the following is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. b. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables. c. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. d. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables.
B. Record the entry for acceptance of promissory note in exchange of accounts receivable from McCormick Industries. C. Record the entry for interest accrued on promissory note received from McCormick Industries. D. Record the entry for interest received , from McCormick Industries , on the note's maturity date. E. Record the entry for payment received from McCormick Industries the principal on the note's maturity date.
________________1. This is the criterion to determine whether the transfer is accounted for as borrowing._______________ 2. What account to debit if the company pays a delinquent notes receivable that was previously discounted._______________ 3. What account to credit if the customer’s notes receivable become delinquent and was not previously discounted.
Do items reported as a credit memorandum on the bank statement represents (a) additions made by the bank to the company’s balance or (b) deductions made by the bank from the company’s balance? Explain.
Which of the following is essentially unsecured? A• Certificate deposits B• Treasury bills C• Commercial papers D• Repurchase agreement
When referring to a note receivable or promissory note a.the note cannot be factored to another party b.the note may be used to settle an account receivable c.the note is not considered a formal credit instrument d.the maker is the party to whom the money is due
a bank that meets a deposit withdrawal by selling t-bills will alter: neither the asset nor liabilities side of the balance sheet the asset side of its balance sheet both the asset and liabilities side of the balance sheet the liabilities side of its balance sheet
Which of the following accounting entries is correct? a) Record of issuance of bills receivable B) Cancellation of the rediscount transaction reserved for bills receivable at the beginning of the period NS) Posting of interest on notes receivable D) Register of notes receivable becoming worthless TO) Recording of the rediscount transaction for notes receivable at the end of the period