NOTES RECEIVABLE Flashcards
Loans and receivables are
a. Nonderivative financial assets with fixed or determinable payments that are not quoted in an active market
b. Nonderivative financial assets with fixed or determinable payments that are quoted in an active market
c. Nonderivative financial assets without fixed or determinable payments that are not quoted in an active market
d. Nonderivative financial assets without fixed or determinable payments that are quoted in an active market
All of the following are characteristics of financial assets classified as loan and receivables except
a. They are not quoted in an active market
b. They have fixed or determinable payments
c. The holder has demonstrated positive intention and ability to hold them to maturity
d. The holder can recover substantially all of its investment (unless there has been credit deterioration)
Initially, loans and receivables are measured at
a. Fair value
b. Fair value plus transaction costs that are directly attributable to the acquisition
c. Maturity value
d. Maturity value plus transaction costs that are directly attributable to the acquisition
Subsequent to initial recognition, loans and receivables are measured at
a. Cost
b. Amortized cost using the straight-line method
c. Amortized cost using the effective interest method
d. Fair value
The “amortized cost” of loan receivable is the amount of which
a. The loan receivable is measured initially minus principal repayment, plus or minus the cumulative amortization of any difference between the initial amount recognized and the principal maturity amount, minus reduction for impairment
b. The loan receivable is measured initially minus principal repayment, plus or minus amortization recognized and the principal maturity amount
c. The loan receivable is measured initially
d. The loan receivable is measure initially minus principal payment
Long-term notes receivable which nominally bear no interest or an interest which is unreasonably low should be recognized initially at
a. Face value c. Maturity value
b. Present value d. Net realizable value
Assuming that the ideal measure of short-term receivable in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because
a. The amount of discount is not material
b. Most receivables can be sold to a bank or factor
c. Most short-term receivables are not interest-bearing
d. The allowance for uncollectible accounts includes a discount element
Accounting for the interest in a non-interesting bearing note receivable is an example of what aspect of accounting theory?
a. Matching c. Substance over form
b. Verifiability d. Accounting entity
On January 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 June 30 of the current year is
a. 4% of the face amount of the note c. 4% of the present value of the note
b. 5% of the face amount of the note d. 5% of the present value of the note
The carrying value of an impaired note immediately after the recognition of the impairment loss is the
a. Nominal sum of remaining cash flows to be received
b. The book value before the impairment is recognized less accrued interest
c. Present value of remaining cash flows to be received, discounted at the current market rate of interest
d. Present value of remaining cash flows to be received, discounted at the original interest rate implicit in the note
If there is an evidence that an impairment loss on loan receivable has been incurred, the amount of the loss is equal to the
a. Excess of the principal amount of the loan over its carrying amount
b. Excess of the carrying amount of the loan over the principal amount of the loan
c. Excess of the present value of cash flows related to the loan over the carrying amount of the loan receivable
d. Excess of the carrying amount of the loan receivable over the present value of the cash flows related to the loan
The carrying value of an impaired note before recognizing a loan impairment
a. Includes accrued interest
b. Excludes accrued interest
c. Is less than the carrying value after recognizing the impairment
d. Is the same as the carrying value after recognizing the impairment
The discount on notes receivable represents
a. Unearned interest c. Prime interest
b. Prepaid interest d. Accrued interest
What is the treatment of “direct origination costs” incurred in connection with loans and receivables?
a. Included in profit or loss
b. Part of the initial carrying amount of the loans receivable and amortized using the effective interest method
c. Part of the initial carrying amount of the loans receivable and amortized using the straight-line method
d. Charged directly to retained earnings
