2 - Notes Payable Flashcards
Obligations supported by promissory notes
Notes Payable
Notes payable are initially recognized at?
FV - transaction cost
Price that would be received to sell the asset or paid to transfer a liability.
Fair Value
Matures within 1 year
Short-term payable
Matures beyond 1 year
Long-term payable
The fair value of short-term payable is equal to its?
Face Value
If short-term payable bears significant financing component, its FV is equal to?
Present Value
FV of long-term payable that bears a reasonable interest rate is equal to?
Face Amount
FV of long-term payable that bears no interest (long-term non interest bearing) is equal to
Present Value
FV of long-term payable that bears an unreasonable interest rate is equal to
Present Value
Rate that exactly discounts the future cash payments that would equal to its carrying amount
Effective interest rate
Amount that would have been paid if transaction was settled outright on cash basis
Cash price equivalent
Notes payable initially recognized @ face amount are subsequently measured @
@ Face amount or expected settlement amount
Notes payable initially recognized @ present value are subsequently measured @
@ Amortized cost
Amount where fin. asset/liability is measured at initial recognition - principal repayments, (+ or -) cumulative amortization
Amortized cost
Method of calculating amortized cost of fin. asset/liability and allocating interest income/expense over the period
Effective interest method
Rate of interest stated on loan or investment without any adjustments or fees
Nominal rate
Interest is computed only on the outstanding principal balance
Simple interest
Money a business owes after taking out a loan & an expense to the income statement
Interest expense
Current liability for the part of the loan that is currently due but not yet paid and recorded in the balance sheet.
Interest payable
Interest is computed on both outstanding balances of principal & accrued interest
Compounded interest
Amortization in the immediately following year
Current portion
Present value in the immediately following year
Noncurrent portion
Interest is only incurred after
a passage of time
Annuity factors are applicable only when series are
uniform or equal
When cash flows vary (Non-uniform installments) what is used
PV of 1
Price that manufacturer of an item suggests that store should charge for it
List price
Recognized immediately in profit or loss on initial recognition
Day 1 Difference
Similar to note payable; supported by a formal promise to pay sum of money at specific future date
Loan payable
Loans payable can be used to imply
bank loans and more
How are loans payable accounted for
Similar to notes payable but involves transaction costs
Incremental costs that are directly attributable to the acquisition, issue or disposal of fin. instrument
Transaction costs
One that would not have been incurred if the entity had not acquired the financial instrument
Incremental costs
Transaction costs include:
- Fees and commissions
- Levies
- Transfer of taxes and duties
Paid to agents, advisers, brokers, and dealers
Fees and commissions
Paid to regulatory agencies and securities exchanges (to collect a tax)
Levies
Charge levied on the transfer of ownership or title to property from on entity to another.
Transfer taxes and duties
Upfront fee charged by a lender to cover costs of processing the loan; DEDUCTED when measuring carrying amount of loan
Origination fees
Normally come in the for of “service fees”
Origination fees
Percent of the principal amount and directly deducted from the loan proceeds
Service fee
One that has a collateral security which lender can take if the borrower defaults.
Security loan
Loan secured by a real property (lot or building)
Mortgage loan
Signed by evidencing the loan and the encumbrance over the property
Mortgage note
Loan secured by movable personal property (car, equipment, jewelry or livestock)
Chattel mortgage
Where interest changes are based on fixed rate
Fixed interest loan
Where interest charges vary as market interest changes
Variable interest loan
Arrangement between financial institutions and a borrower that establishes the maximum amount of loan the borrower can obtain
Credit line or line of credit
Provides convenience and saves the borrower cost
Credit lines
Uses a line of credit; It can be used to borrow cash or make credit purchases. When credit limit is reached, card no longer be used until the obligation is settled.
Credit card
Linked to the cardholder’s bank account. Funds used purchases are automatically withdrawn from the cardholder’s account.
Debit card
longest bone in the body
credit card
