Chapter 15 Receivable Financing - Discounting of Notes Receivable Flashcards
In a promissory note, the original parties are the ___ and ___. The __ is the one liable and the ___ is the one entitled to payment on the date of maturity.
maker, payee, maker, payee
When a note is ___, the payee may obtain cash before maturity date by ___ the note at a bank or other financing company.
negiotiable, discounting
To discount the note, the payee must ___ it. Thus, legally, the payee becomes an ___ and the bank becomes an ___.
endorse, endorser, endorsee
Endorsement may be with recourse which meant that _______ if the maker dishonors the note. This is the _____ of the endorser.
the endorser shall pay the endorsee, contingnet/secondary liability
Endorsement may be without recourse, which means that the endorser avoids future liability even if _____ on the date of maturity.
the maker refuses to pay the endorsee
In the absence of any evidence to the contrary, endorsement is assumed to be _____
with recourse
Net Proceeds =
Maturity Value - Discount
Discount =
Maturity Value * Discount Rate * Discount Period
Discount Rate is the rate used by the ___ in ____ the discount. If no discount rate is given, the interest rate is ____
bank, computing, assumed as the discount rate.
Discount Period is the period of time from ___ to ___
date of discounting, discount rate
Maturity Value =
Principal * Rate * Time
Principal is also known as as
Face Value
Interest =
Face * Interest Rate * Time
Interest Rate is the rate appearing on ___
the face of the note. Aka Stated Rate
Time =
Full term of the note. The period from date of note to maturity date
Maturity Date is the date on which ____
the note should be paid
Accrued Interest Receivable is the earned interest from ___ to ____
date of note, date of discounting
Gain or Loss on Note Discounting =
Net Proceeds - Carrying Amount of N/R. If positive, gain. If negative, loss.
Carrying amount of the N/R =
Principal + Accrued interest receivable - Note receivable discounted (if any)
The entries to record the discounting of a N/R (without recourse) are:
Dr. Cash at Net Proceeds, Dr. Loss on note receivable discounting (if any) at the balancing amount, Cr. N/R at Face Value, Cr. Interest Income at Accrued Interest Receivable, Cr. Gain on note receivable discounting (if any) at the balancing amount
The entries to record the discounting of a N/R with recourse, conditional sale are:
Dr. Cash at Net Proceeds, Dr. Loss on note receivable discounting (if any) at the balancing amount, Cr. N/R Discounted at Face Value, Cr. Interest Income at Accrued Interest Receivable, Cr. Gain on note receivable discounting (if any) at the balancing amount.
The N/R Discounted account is ___ from the total notes receivable when preparing the statement of financial position with ___ of the contingent liability.
deducted, disclosure
N/R Discounted is deducted from ____
total N/R
There is a ___ of the ___ liability in discounting N/R with recourse as a conditional sale.
disclosure, contingent