Intermediate Accounting 7-3

Jessica accepts a $50,000, 60-day noninterest-bearing note receivable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sales revenue is $56,000. $44,000. $49,000. $50,000

$49,000. Reason: 50,000-(50,000 X 12% X 60/360)

True or false: An interest-bearing note earns interest, whereas a noninterest-bearing note does not earn interest.

False

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June? a) $6,000 b) $4,500 c) $1,500 d) Zero.

a) $6,000

(Face amount x annual rate x fraction of the annual period) is the formula for interest on a note. bad debt expense. sales price of a good. issue price of a security.

interest on a note.

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender. note payable. note receivable. account payable. account receivable.

note receivable

A formal credit arrangement between a creditor and debtor is called a(n) note receivable. interest receivable. trade receivable. account receivable.

note receivable.

Clancy Co. accepted a two-year noninterest-bearing note for $1,166,400 on January 1, 2020. The note was accepted as payment for merchandise with a fair value of $1,000,000. The effective interest rate is 8%.The cash collection on December 31, 2021, would be recorded as: a) Discount on notes receivable86,400 Cash1,166,400 Notes receivable 1,166,400 Interest revenue 86,400 b) Cash1,166,400 Notes receivable 1,166,400 c) Cash1,166,400 Notes receivable 1,000,000 Discount on notes receivable 166,400 d) Cash1,166,400 Discount on notes receivable166,400 Notes receivable 1,166,400 Interest revenue 166,400

a) Discount on notes receivable86,400 Cash1,166,400 Notes receivable 1,166,400 Interest revenue 86,400

On June 1, Parson Assoc. sold equipment to Arleo and agreed to accept a 3-month, $56,000, 10% interest-bearing note in payment at a time when the prevailing rate of interest for similar transactions was 10%. When the note was collected upon maturity, Parson would recognize interest revenue of: a) $0. b) $1,400. c) $2,800. d) $4,200

b) $1,400.

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. If the transfer were made with recourse but is still accounted for as a sale, what amount of loss on sale of receivables would the company record in June assuming the estimated recourse liability is $2,000? a) $6,500 b) $8,000 c) $4,000 d) Zero.

b) $8,000

Baker Inc. acquired equipment from the manufacturer on 10/1/2021 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $993,000 on 4/1/2022 to satisfy the obligation in full. If Baker accrued interest of $16,500 on the note in its 2021 year-end financial statements, what is its imputed annual interest rate? a) 3.4%. b) 6.9%. c) 10.3%. d) None of these answer choices are correct.

b) 6.9%.

ABC Company misstates its ending inventory at the end of Year 1. ABC does not discover and correct the error until Year 3. The company's annual report includes comparative financial statements for Years 2 and 3. (Ignore the impact on income taxes.) Which of the following statements about this error is true? Check All That Apply a) A disclosure note is needed to describe the nature of the error. b) A disclosure note is needed to describe the impact of the error on net income, each line-item affected, and earnings per share. c) A journal entry to correct the error is needed. d) The Year 2 financial statements are not required to be retrospectively restated.

b) A disclosure note is needed to describe the impact of the error on net income, each line-item affected, and earnings per share. c) A journal entry to correct the error is needed.

Which of the following statements about the use of the lower of cost or net realizable value approach under IFRS is true? a) The lower of cost or net realizable value approach is not permitted under IFRS. b) Under IFRS, if circumstances indicate that an inventory write-down is no longer appropriate, the write-down must be reversed. c) Under IFRS, write-downs of inventory cannot be reversed. d) Under IFRS, the lower of cost or net realizable value approach is applied to individual items, inventory categories, or the entire inventory.

b) Under IFRS, if circumstances indicate that an inventory write-down is no longer appropriate, the write-down must be reversed.

Frasquita acquired equipment from the manufacturer on 6/30/2021 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $588,000 on 4/30/2022 to satisfy the obligation in full.If Frasquita accrued interest of $30,000 on the note in its 2021 year-end financial statements, what amount would it have recorded the equipment for on 6/30/2021? a) $488,000. b) $588,000. c) $538,000. d) $518,000.

c) $538,000.

Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were: a) $63,000 b) $64,680 c) $61,740 d) $67,200

c) $61,740

The following data are available for the Hunting Balloon Company: Sales for the current year $1,500,000 Cost of goods sold for the current year 1,200,000 Accounts receivable, beginning of year 140,000 Accounts receivable, end of year 160,000 The accounts receivable turnover ratio for the current year is: a) 8.00 b) 10.71 c) 10.00 d) 9.375

c) 10.00

Heinlein Assoc. accepted a two-year interest-bearing note for $1,000,000 on January 1, 2020. The note was accepted as payment for merchandise with a fair value of $1,000,000. The effective interest rate is 7%. Interest is paid at the end of each year.The cash collection on December 31, 2021, would be recorded as: a) Discount on notes receivable74,900 Cash1,144,900 Notes receivable 1,144,900 Interest revenue 74,900 b) Cash1,000,000 Notes receivable 1,000,000 c) Cash1,070,000 Notes receivable 1,000,000 Interest revenue 70,000 d) Cash1,144,900 Interest receivable 70,000 Notes receivable 1,000,000 Interest revenue 74,900

c) Cash1,070,000 Notes receivable 1,000,000 Interest revenue 70,000

Lewis Diagnostics sold merchandise to a customer in exchange for a $40,000, four-year, noninterest-bearing note when an equivalent loan would carry 8% interest. Lewis would record sales revenue on the date of sale equal to: a) $0. b) $40,000. c) The present value of $40,000 using an 8% interest rate. d) The future value of $40,000 using an 8% interest rate.

c) The present value of $40,000 using an 8% interest rate.

On January 1, Klay Corp. receives a $100,000, 120-day, noninterest-bearing note receivable from a customer. The discount rate is 6%. On May 1, when Klay receives full payment from the customer, Klay will record a credit to notes receivable for $100,000. debit to interest receivable for $6,000. debit to notes receivable for $100,000. credit to notes receivable for $102,000.

credit to notes receivable for $100,000.

On June 1, Tulip Corp. provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a credit to Service Revenue, $41,000. credit to Service Revenue, $44,000. debit to Notes Receivable, $40,000. debit to Notes Receivable, $44,000.

debit to Notes Receivable, $40,000.