Long term liabilities - time value of money

Question 1

How to calculate interest income/loss for a non-interest bearing note?

Answer 1

A non-interest bearing note should be calculated at its present value using prevailing market interest rate

Question 2

How to record “customary trade terms” notes and account receivables on the BS?

Answer 2

Trade notes and account receivables with customary trade terms NOT exceeding one year may be recorded at face.

Question 3

what are types of time value money concepts

Answer 3

PV of $1
PV of an ordinary annuity
PV of annuity due

FV of $1
FV of an ordinary annuity
FV of annuity due

Question 4

what is a normal PV formula?

Answer 4

PV = FV x PV of $1

Question 5

what is a difference between
ordinary annuity and annuity (apply to both PV and FV)?

Answer 5

Annuities are transactions (bond and lease with interest) result in identical periodic payments. Payments made at the end of each period are ordinary annuities (annuities in arrears). Payments occur at the beginning of each period are annuities.

Question 6

what happens to note payable’s PV on BS when discount or premium?

Answer 6

A discount is a direct reduction from the face of the note, while a premium is an addition to the note.

Question 7

what to classify a bonds or notes due w/in 1 year, and the issuer has the intent and ability to refinance with a new long term debt. This event must be after the BS date but before the issuance of the FS?

Answer 7

A non-current liability, with a separate disclosure of the note financing.

Question 8

Do we need to record accrued interest even though no cash pmt until maturity?

Answer 8

YES

Question 9

Do we need to report PV and discounting values for SHORT term note payable (payment quarterly) ?

Answer 9

NO. PV and discount on note payable (interest) apply for LONG term debts