Chapter 5 - Notes Receivable (Interest-Bearing)

Question 1

When can promissory notes be used?

Answer 1

1. For accounts receivable that are overdue.
2. Selling of the entity’s PPE on credit.
3. Lending of funds.

Question 2

The one who makes and signs the promissory note.

Answer 2

Maker

Question 3

The one who receives the promissory and gets a note receivable.

Answer 3

Payee

Question 4

When is fair value equal to the note’s face amount?

Answer 4

When it is interest-bearing and when the stated rate is equal to the market rate.

Question 5

When is fair value equal not the present value of cash flows using market rate as of initial recognition?

Answer 5

When it does not meet at least one of the following:
1. When it is interest-bearing
2. When the stated rate is equal to the market rate

Question 6

This is the amount of interest that the maker shall pay in addition to the face amount of the promissory note.

Answer 6

Stated rate

Question 7

This is the general prevailing rate of return that the investors expect from their investments with similar characteristics as the promissory notes, whether it is interest-bearing or not.

Answer 7

Market rate

Question 8

When can a note be measured initially at face amount?

Answer 8

If the term of the note is less than 12 months.

Question 9

This is when the whole face amount (or principal) is payable only on maturity date.

Answer 9

Term notes

Question 10

This is a note which portions of the face amount (or principal) are payable periodically.

Answer 10

Serial (Installment) notes