fo Problem 6-17 Multiple choice (AICPA Adapted) 1. On October 1 of the current 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 year, an entity received a 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 2. 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 3. 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%. 187‘4 What is imputed interest? Interest based om the stated interest rate interest based on the implicit interest rate & Interest based on the average interest rate Interest based on the bank prime interest rate 5. Accounting forthe interest in a noninterest bear receivable is an example of what aspect of ao ia seo ple of what aspect of accounting Relevance Verifiability Substance over form Form over substance 6. On duly 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate, The fave 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 81 b, December 31 but not July 1 e. July 1 and December 31 4. Neither July 1 nor December 31 7. On duly Lof the current year, an entity received a one-year note receivable bearing interest at the market rate. The ft ‘amount of the note receivable and the entire amount ofthe interest are due in one year. When the note receivable *# recorded on July 1, which of the following was debited? ‘a. Interest receivable b. Unearned discount on note receivable Intereet receivable and unearned discount on n0l® receivable d. Neither interest re note receivable sceivable nor unearned disoount 188 gat on sty wld els be wich rortved 8 OU NSogt mae firm The Se icity ie hae ee cie eh a el er Hct, wc ofthe toning Seas need er teaser reaneble 8 eet eet ee : on July 1 ofthe current year, an entity received & one-year Gita receivable bearing interest at the market rate. The free amount of the note receivable and the entire amount of the interest are due on June 30 of next year. On December 51 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 . Interest receivable for the entire amount of the interest due on June 30 of next year 4. Interest receivable for the interest accruing in the current year 10. An entity received a seven-year ero interest-bearing note fon February 1, 2020 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, 2020, 6% on December 31, 2020, 8% on February 1, 2021, and 9% on December 31, 2021, What interest rate should be used to calculate the interest revenue from the transsetion for the Years ended December 31, 2020 and 2021, respectively? 0% and 0% b. 7% and 7% & M% and 9% 6% and 95% 1891. problem 8-19 Multiple choice (IAA) Why would an entity factor accounts receivable? To improve the quality of credit granting process To limit its legal liability To accelerate access to amount collected To comply with customer agreements Bose Which of the following is a method to generate cash from accounts receivable? a. Assignment b. Factoring c. Assignment and factoring d. Assignment, factoring and discounting The practice of realizing cash from accounts receivable prior to maturity date is widespread. Which term is not associated with this practice? Hypothecation Factoring Defalcation Pledging Boop When the accounts receivable are sold outright, the accounts receivable have been a. Pledged b. Assigned c. Factored d. Collateralized Which of the following is used to account for probable sales discounts, sales returns and sales allowances in a factoring arrangement? Factor holdback Recourse liability et Both factor holdback and recourse liability Neither factor holdback nor recourse liability 249 peopProblwm 8-20 Multiple choice (AICPA Adaptea) 1. When an entity factored accounts receivable without recourse with a bank, the transaction is best described as a. Bank loan collateralized by the accounts receivable, b. Bank loan to be repaid by the proceeds from the accounts receivable. c. Sale of the accounts receivable to the bank, with risk of uncollectible accounts retained by the entity. d. Sale of the accounts receivable to the bank, with the risk of uncollectible accounts transferred to the bank, 2. Which statement is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as secured borrowing or sale. b. The accounts receivable are used as collateral. ce. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the accounts receivable. d. The financing cost should be recognized ratably over the collection period. 3. All but one of the following are required before a transfer of accounts receivable can be recorded as a sale. a. The transferred accounts receivable are beyond the reach of the transferor and the creditors. b. The transferor has not kept effective control through 4 repurchase agreement. c. The transferor maintains continuing involvement. d. The transferee can pledge the accounts receivable. 4, If financial assets are exchanged for cash but the transiet "does not meet the criteria for a sale, the transaction shoul be accounted for as Secured borrowing a ff collateral b. Pledee Joured borrowing and pledge of collateral : S Neither secured borrowing nor pledge of collaters 250 |Problem 9-13 Multiple choice (IAA) 1. Ifa note receivable is discounted with recourse ‘A contingent liability does not exist. Note receivable discounted is credited. Liability for note receivable discounted is credited, |. Note receivable must be credited. Bore 2, The note receivable discounted account is reported as a. Contra asset account for the proceeds from . discounting b. Contra asset account for the face amount of the note c. Liability account for the proceeds from the discounting d. Liability account for the face amount of the note 3, Ifa note receivable is discounted without recourse a. The contingent liability may be disclosed b. Liability for note receivable discounted is credited c. Note receivable is credited d. The transaction is a secured borrowing 4, Note receivable discounted with recourse should be a. Excluded from total receivables without disclosure b. Excluded from total receivables with disclosure c. Included in total receivables without disclosure d. Included in total receivables with disclosure 5. After being held for 40 days, a 120-day 12% interest bearing note receivable was discounted at a bank at 15% The net proceeds from discounting are equal to a. Maturity value less the discount at 12% b. Maturity value less the discount at 15% c. Face amount less the discount:at 12% d. Face amount less the discount at’ 15% 270