Notes Receivable

Notes receivable

represents only claims arising from sale of merchandise or service in the ordinary course of business.

Notes receivable

claims supported by formal promises to pay usually in the form of notes

False - designated separately

[T/F] Non-trade notes receivable like notes received from officers, employees, shareholders and affiliates are designated the same.

Negotiable Promissory Note

an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed determinable future time a sum certain in money to order or to bearer

maker; payee

The negotiable promissory note is a written contract in which one person (_____), promises to pay another person (_____), a definite sum of money.

T

[T/F] A negotiable promissory note is payable on demand or at a definite future date.

Dishonored Notes

when a promissory note matures and is not paid, it is said to be dishonored.

maker

the person who promises to pay [notes payable]

payee

the person to whom the promise is made [notes receivable]

False - transfer to accounts receivable

[T/F] Theoretically, notes receivable should be removed from the notes receivable and transferred into a new account.

present value

notes receivable shall be measured initially at ___________

present value

sum of all future cash flow discounted using the prevailing market rate of interest for similar notes

effective interest rate

prevailing market rate of interest is actually the __________.

face amount

Short-term Notes Receivable is measured at _______

F - not material

[T/F] Cash flows relating to short-term notes receivable are not discounted because the effect of discounting is usually material

T

[T/F] initial measurement of long-term notes will depend on whether the notes are interest-bearing or noninterest bearing.

Interest-bearing notes receivable

A note on which interest rate is quoted and interest is paid on due date along with the principal amount

Interest-bearing notes receivable

measured at face amount which is actually the present value upon issuance

imputed interest

Interest based on the implicit interest rate

Interest-bearing notes receivable

interest is separate from the face amount

Interest-bearing notes receivable

with interest rate on the face of the note

Noninterest-bearing notes receivable

a case of the interest being included in the face amount rather than being stated as a separate rate.

Noninterest-bearing notes receivable

measured at present value which is the discounted value of the future cash flows using the effective interest rate

Noninterest-bearing notes receivable

without interest rate on the face of the note

Noninterest-bearing notes receivable

interest is included from the face amount

F - a misnomer

[T/F] the term "noninterest-bearing" is a true because all notes implicitly contain interest.

amortized cost; effective interest method

long-term notes receivable shall be subsequently measured at ________ using the ________.

interest-bearing

subequently measured at face value; amortized cost is not applicable

noninterest-bearing

subsequently measured at amortized cost

1. face amount - unamortized unearned interest income or;

2. present value + amortization of the discount

formula for amortized cost

[1 - (1 +i) ^-n ] / i

Formula of Present Value [PV Factor of OA of 1]

(1 + i) ^ -n

Formula of Present Value [PV Factor of 1]

T

[T/F] only long term interest bearing and noninterest bearing notes receivable will be discussed in conjunction with the present value concept.

The amortized cost is the amount at which the note receivable is measured initially:

1. Minus principal repayment

2. Plus or minus cumulative amortization of any difference between the initial carrying amount and the principal maturity amount

3. Minus reduction for impairment or uncollectibility

PFRS 9, paragraph 5.2.1

PFRS 9, paragraph 5.2.1

The amortized cost is the amount at which the note receivable is measured initially:

1. Minus principal repayment

2. Plus or minus cumulative amortization of any difference between the initial carrying amount and the principal maturity amount

3. Minus reduction for impairment or uncollectibility