Financial Accounting and Reporting Quiz

Financial Accounting and Reporting

Short-term Notes Payable

• A short-term, non-trade, note payable with no stated interest rate should be recorded at its present value.
• A short-term note payable may include all of the following except: trade notes, interest-bearing notes, and non-interest-bearing notes.

Measurement of Notes Payable

• The initial measurement of a note payable and the related equipment is based on the present value of the future payments.
• The present value of the note payable is the amount that would be received if the note were sold to a third party.

Interest Expense

• Interest expense is incurred when a note payable is issued.
• Interest expense is calculated using the effective-interest amortization method.
• The effective-interest amortization method always equals the product of the beginning carrying value of the note and the effective interest rate.

Discount on Note Payable

• The discount resulting from the determination of a note payable's present value should be reported on the balance sheet as a (contra)asset.
• The discount on a note payable is amortized over the life of the note using the effective-interest method.

Loan Origination Fees

• Loan origination fees are a type of fee that lenders charge to borrowers for the processing of loan applications.
• Loan origination fees are deducted from the loan proceeds and are amortized over the life of the loan.

Current Liabilities

• Current liabilities include notes payable that are due within one year or within the company's operating cycle, whichever is longer.
• The current portion of a long-term note payable is reported as a current liability on the balance sheet.

Accrued Interest Payable

• Accrued interest payable represents the amount of interest that has been incurred but not yet paid.
• Accrued interest payable is reported as a current liability on the balance sheet.

Debt-to-Equity Ratio

• The debt-to-equity ratio is a measure of a company's leverage.
• The debt-to-equity ratio is calculated by dividing total debt by total stockholders' equity.

Non-Interest-Bearing Notes

• Non-interest-bearing notes are notes that do not have a stated interest rate.
• The present value of a non-interest-bearing note is determined using the market interest rate.

Notes Receivable

• Notes receivable are amounts owed to a company by its customers.
• Notes receivable are reported as an asset on the balance sheet.

Effective Interest Rate

• The effective interest rate is the rate that reflects the true cost of borrowing.
• The effective interest rate is used to calculate the interest expense and the carrying value of a note payable.

Carrying Value of a Note Payable

• The carrying value of a note payable is the amount reported on the balance sheet.
• The carrying value of a note payable is determined by discounting the future payments using the effective interest rate.

Loan Origination Fee Amortization

• Loan origination fees are amortized over the life of the loan using the effective-interest method.
• The amortization of loan origination fees reduces the interest expense over the life of the loan.

This quiz covers financial accounting and reporting concepts, including short-term notes payable and interest rates.