Receivables

Question 1

71. On December 31, 1999, Key Co. received two $10,000 noninterest-bearing notes from customers in exchange for services rendered. The note from Alpha Co., which is due in nine months, was made under customary trade terms, but the note from Omega Co., which is due in two years, was not. The market interest rate for both notes at the date of issuance is 8%. The present value of $1 due in nine months at 8% is .944. The present value of $1 due in two years at 8% is .857. At what amounts should these two notes receivable be reported in Key’s December 31, 1999, balance sheet?

Answer 1

A: Alpha = $10,000; Omega = $8,570

IMPORTANT: The note from Alpha Co. is a short-term asset. It is reported at the face value of $10,000.