037 Notes Receivables

Question 1

What do we call the (1) maker and (2) holder of a note?

Answer 1

(1) Maker is the buyer or borrower. (2) The holder is the seller or lender.

Question 2

How is the present value in a noncash transaction determined?

Answer 2

The fair market value of the noncash asset or of the note receivable, whichever is more readily determinable.

Question 3

How is the present value in a cash transaction determined?

Answer 3

The amount of cash that exchanged hands.

Question 4

At what value should a note receivable be recorded?

Answer 4

The present value of all future cash flows.

Question 5

Describe the difference between an interest-bearing and a noninterest-bearing note receivable.

Answer 5

Interest-bearing: the amount of cash to be collected from an interest-bearing note is the face amount of the note plus interest; Noninterest-bearing: the face amount of the note includes principal and interest that will be collected at maturity date.

Question 6

Define “market rate”.

Answer 6

Interest rate used to determine the present value of a note receivable.