Class 5.2 Slides_Instructor (1).pptx

# Class 5.2 Slides_Instructor (1).pptx - BUS-A310 Unit 2...

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BUS-A310 Unit 2: Accounting for Assets

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CLASS 5.2 CHAPTER 7: NOTES RECEIVABLES Learning Objective: measure the effects of business decisions related to receivables [CO5]
N/R: INTEREST BEARING (AT FACE VALUE) What How Why Whe n [How do you record N/R issued at face value?] 3 Hoosier Corp lends Indiana Imports \$10,000 in exchange for a \$10,000, 3- year note bearing interest at 10% [annually]. The market rate of interest for a note of similar risk is also 10%. How does Hoosier Corp record the receipt of the note? 0 1 2 3 \$1,000 \$1,000 Interest \$1,000 \$10,000 Principal 4 i = 10% n = 3 N = 3  # payments I = 10%  Market Rate (MR) FV = 10,000  Face Value (FcV) PMT = 1,000  Stated Rate x FcV PV = ? PV = \$10,000 Stated Rate = Market Rate Pv = FcV

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N/R: INTEREST BEARING (AT FACE VALUE) 4 Hoosier Corp lends Indiana Imports \$10,000 in exchange for a \$10,000, 3- year note bearing interest at 10% [annually]. The market rate of interest for a note of similar risk is also 10%. How does Hoosier Corp record the receipt of the note? Jan. yr. 1 Dec. yr. 1 JE to record the issuance of the note AJE to record the interest received at the end of the period What How Why Whe n [How do you record N/R issued at face value?]
N/R: INTEREST BEARING (AT FACE VALUE) 5 Hoosier Corp lends Indiana Imports \$10,000 in exchange for a \$10,000, 3- year note bearing interest at 10% [annually]. The market rate of interest for a note of similar risk is also 10%. How does Hoosier Corp record the receipt of the note? Notes Receivable 10,000 Cash 10,000 Cash 1,000 Interest Revenue 1,000 Jan. yr. 1 Dec. yr. 1 JE to record the issuance of the note AJE to record the interest received at the end of the period What How Why Whe n [How do you record N/R issued at face value?] FcV PV of note MR x CV (CV = N/R - discount) Stated Rate x FcV or just Pmt

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N/R: INTEREST BEARING (NOT AT FACE VALUE) What How Why Whe n [How do you record an interest bearing N/R issued at less than the market rate?] 6 On Jan 1, Hoosier Corp lends Indiana Imports cash in exchange for a \$10,000, 3-year note bearing interest at 10%. The market rate of interest for a note of similar risk is 12%. How does Hoosier Corp record the receipt of the note? 0 1 2 3 \$1,000 \$1,000 Interest \$1,000 \$10,000 Principal 4 i = 12% n = 3 N = 3  # payments I = 12%  MR FV = 10,000  FcV PMT = 1,000  Stated Rate x FcV PV = ? PV = \$9,520 Stated Rate < Market Rate PV < Face Value
N/R: INTEREST BEARING (NOT AT FACE VALUE) 7 Hoosier Corp lends Indiana Imports cash in exchange for a \$10,000, 3- year note bearing interest at 10%. The market rate of interest for a note of similar risk is 12%. How does Hoosier Corp record the receipt of the note? Jan. yr. 1 JE to record the issuance of the note What How Why Whe n [How do you record an interest bearing N/R issued at less than the market rate ?]

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N/R: INTEREST BEARING (NOT AT FACE VALUE) 8 On Jan 1, Hoosier Corp lends Indiana Imports cash in exchange for a \$10,000, 3-year note bearing interest at 10%. The market rate of interest
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