CLASS QUESTIONS 14B

CLASS QUESTIONS 14B - CLASS QUESTIONS (14B) (1) Whether...

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CLASS QUESTIONS (14B) (1) Whether interest-bearing or non-interest-bearing, long-term bonds and notes (both referred to as notes hereinafter) are initially recorded at the present value of the cash payments required to be made under the terms of the note. Whenever a note is issued solely for cash, its present value is the amount of cash received and the effective interest rate can be computed as we have done previously. If a note is issued in exchange for property, goods or services and the note has a reasonable (realistic) stated rate of interest, the initial present value of the note is presumed to be the same as the face amount and the effective interest rate is presumed to be the same as the stated rate. A problem arises when a note is issued in exchange for property, goods or services if the note is non-interest-bearing (meaning the interest is buried in the face amount of the note) or if it has some other unrealistic rate of interest. In such cases, the stated rate is not indicative of the effective rate and thus alternative means must be used to determine the initial present value and the effective interest rate. a. In the case of a non-interest-bearing note, the fair value (price if sold for cash) of the property, goods or services exchanged for the note is the accountant's first choice for measuring the initial present value of the note. In such cases, the
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CLASS QUESTIONS 14B - CLASS QUESTIONS (14B) (1) Whether...

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