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    04 Quiz 2

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    prettyboiy19
    The document contains a multiple choice quiz about accounting for notes payable. There are 10 questions that cover topics such as present value, interest rates, discounts on notes payable, and exchanging notes payable for other assets.

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    04 Quiz 2

    Uploaded by

    prettyboiy19
    5 views2 pages
    The document contains a multiple choice quiz about accounting for notes payable. There are 10 questions that cover topics such as present value, interest rates, discounts on notes payable, and exchanging notes payable for other assets.

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    04_Quiz_2(3)

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    The document contains a multiple choice quiz about accounting for notes payable. There are 10 questions that cover topics such as present value, interest rates, discounts on notes payable, and exchanging notes payable for other assets.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    5 views2 pages

    04 Quiz 2

    Uploaded by

    prettyboiy19
    The document contains a multiple choice quiz about accounting for notes payable. There are 10 questions that cover topics such as present value, interest rates, discounts on notes payable, and exchanging notes payable for other assets.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 2

    BM2403

    MULTIPLE CHOICE – THEORETICAL


    Instruction: Encircle the letter of the correct answer. (10 items x 1 point)

    1. When an entity issues a notes payable solely in exchange for cash, the present value of the notes
    payable at issuance is equal to:
    a. Face amount
    b. The face amount discounted at the prevailing interest rate
    c. Proceeds received
    d. Proceeds received discounted at the prevailing interest rate

    2. If the present value of notes payable issued in exchange for a property is less than the face amount,
    the difference should be
    a. Included in the cost of the asset
    b. Amortized as interest expense over the life of the note
    c. Amortized as interest expense over the life of the asset
    d. Included in interest expense in the year of issuance

    3. An entity borrows cash from a bank and issues a short-term, non-interest-bearing note payable to the
    bank. The bank discounted the note at 10% and remitted the proceeds to the entity. The effective
    interest rate paid by the entity in this transaction would be
    a. Equal to the stated discount rate of 10%
    b. More than the stated discount rate of 10%
    c. Less than the stated discount rate of 10%
    d. Independent of the stated discount rate of 10%

    4. At the issuance date, the present value of a promissory note is equal to the face amount if the note:
    a. Bears a stated rate of interest, which is realistic.
    b. Bears a stated rate of interest which is less than the prevailing market rate for similar notes.
    c. Is non-interest-bearing, and the implicit interest rate is less than the prevailing market rate for
    similar notes.
    d. Is non-interest-bearing, and the implicit interest rate is equal to the prevailing market rate for
    similar notes.

    5. Which statement concerning the discount on notes payable is correct?


    a. Discounts on notes payable may be credited when the entity discounts its note with the bank.
    b. The discount on notes payable is an addition to the face amount of the notes payable.
    c. The discount on notes payable represents interest charges applicable to future periods.
    d. Amortizing the discount on notes payable gradually decreases the liability's carrying amount over
    the note's life.

    6. When a note payable with no ready market is exchanged for a property whose fair value is currently
    indeterminable:
    a. The present value of the notes payable must be approximated using an imputed interest rate.
    b. The notes payable should not be recorded until the fair value of the property becomes evident.
    c. The entity receiving the property should estimate the value of the property.
    d. Both parties involved in the transaction should negotiate a value assigned to the property.

    04 Quiz 2 *Property of STI


    Page 1 of 2
    BM2403

    7. When notes payable are issued for property, the present value of the note is measured by
    a. The fair value of the property
    b. The fair value of the notes payable
    c. Using an imputed interest rate to discount all future payments on the notes payable
    d. All of these are considered in measuring the present value of the notes payable.

    8. When a notes payable is exchanged for property, the stated interest rate is presumed to be fair when
    a. No interest rate is stated.
    b. The stated interest rate is unreasonable.
    c. The face amount of the note is materially different from the cash sale price for a similar property.
    d. The stated interest rate is equal to the market rate.

    9. The discount resulting from the determination of the present value of a notes payable should be
    reported as
    a. Deferred credit
    b. Direct deduction from the face amount of the note
    c. Deferred charge
    d. In addition to the face amount of the note

    10. Which statement is correct when an entity issues a notes payable with no stated interest rate in
    exchange for a depreciable asset?
    a. The asset should be depreciated over the term of the note payable
    b. If fair value is unavailable, the notes payable should be recorded at present value discounted at
    the market interest rate.
    c. The note and the asset are recorded at the face amount of the note payable.
    d. The notes payable are recorded at face amount even if the asset's fair value is readily available.

    04 Quiz 2 *Property of STI


    Page 2 of 2

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