INTACC - CHAPTER 6 Flashcards
On October 1 of the current year, an entity received a one-year note receivable bearing interest at the market. rate. The face amount of the note receivable and the entire amount of the interest are due on September 30 of next year. The interest receivable on December 31 of the current year would consist of an amount representing
a. Three months of accrued interest income
b. Nine months of accrued interest income
c. Twelve months of accrued interest income
d. The excess on October 1 of the present value of the note receivable over the face amount
a. Three months of accrued interest income
On July 1 of the current year, an entity obtained a two-year 8% note receivable for services rendered. At that time, the market rate of interest was 10%. The face amount of the note and the entire amount of interest are due on the date of maturity. Interest receivable on December 31 of the current year is
a. 5% of the face amount of the note
b. 4% of the face amount of the note
c. 5% of the present value of the note
d. 4% of the present value of the note
b. 4% of the face amount of the note
An entity uses the installment method to recognize revenue from installment sales. Customers pay the installment notes in 24 equal monthly amounts which include 12% interest. What is the carrying amount of the installment notes receivable six months after the sale?
a. 75% of the original sales price.
b. Less than 75% of the original sales price.
c. The present value of the remaining monthly payments discounted at 12%
d. Less than the present value of the remaining monthly payments discounted at 12%.
c. The present value of the remaining monthly payments discounted at 12%
What is imputed interest?
a. Interest based on the stated interest rate
b. Interest based on the implicit interest rate
c. Interest based on the average interest rate
d. Interest based on the bank prime interest rate
b. Interest based on the implicit interest rate
Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory?
a. Relevance
b. Verifiability
c. Substance over form
d. Form over substance
c. Substance over form
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due in one year. The interest receivable account would show a balance on
a. July 1 but not December 31
b. December 31 but not July 1
c. July 1 and December 31
d. Neither July 1 nor December 31
b. December 31 but not July 1
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due in one year. When the note receivable was recorded on July 1, which of the following was debited?
a. Interest receivable
b. Unearned discount on note receivable
c. Interest receivable and unearned discount on note receivable
d. Neither interest receivable nor unearned discount on note receivable
d. Neither interest receivable nor unearned discount on note receivable
On August 15, an entity sold goods for which it received a note bearing the market rate of interest on that date. The four-month note was dated July 15. Note principal, together with all interest, is due November 15. When the note was recorded on August 15, which of the following accounts increased?
a. Unearned discount
b. Interest receivable
c. Prepaid interest
d. Interest revenue
b. Interest receivable
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due on June 30 of next year. On December 31 of the current year, the entity should report in the statement of financial position
a. A deferred credit for interest applicable to next year
b. No interest receivable
c. Interest receivable for the entire amount of the interest due on June 30 of next year
d. Interest receivable for the interest accruing in the current year
d. Interest receivable for the interest accruing in the current year
An entity received a seven-year zero interest-bearing note on February 1, 2021 in exchange for property sold. There was no established exchange price for the property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 1, 2021, 6% on December 31, 2021, 8% on February 1, 2022, and 9% on December 31, 2022. What interest rate should be used to calculate the interest revenue from the transaction for the years ended December 31, 2021 and 2022, respectively?
a. 0% and 0%
b. 7% and 7%
c. 7% and 9%
d. 6% and 9%
b. 7% and 7%
