The APR is the annual rate that is required by law to be disclosed on loan documents. The EAR allows for comparison between savings accounts that have different compounding frequencies US treasury bills are considered pure discount loans the cash flows of preferred stock are considered an annuity. car loans are considered amortized loans because each payment includes interest and some principal

The APR is the annual rate that is required by law to be disclosed on loan documents. The EAR allows for comparison between savings accounts that have different compounding frequencies US treasury bills are considered pure discount loans the cash flows of preferred stock are considered an annuity. car loans are considered amortized loans because each payment includes interest and some principal

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 4QE

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1. Which of the following is not a way in which banks lend short-term unsecured loans? Choices: By sending the amount earned from trust and investment products offered by the bank Through a guaranteed credit line that has a commitment fee for any unused amount for the year Through credits cards lines with a certain credit limit By lending a single date maturity loan to a debtor 2. The following are methods of acquiring funds through long-term financing, except Choices: Issuing bonds with semi-annual coupon payment at a discounted price Selling equity securities at an amount above the par value indicated in the stock certificate Issuing a note that indicates a promise to pay the indicated supplier in a future date Selling equity securities with a characteristic of both debt and equity security 3. Which is false about long-term sources of a firm's capital? Choices: Preferred shares are securities whose intrinsic value is based on prospective earnings All types of…
Which of the following is not a way in which banks lend short-term unsecured loans? Through credits cards lines with a certain credit limit Through a guaranteed credit line that has a commitment fee for any unused amount for the year By sending the amount earned from trust and investment products offered by the bank By lending a single date maturity loan to a debtor
Which of the following is true? Short-term notes payable should be discounted at its present value, more so, if it constitutes a financing transaction and the imputed interest can be measured without undue cost or effort. Transaction costs of issuing financial liabilities are expensed outright. The present value of a serial note's principal is computed by using the PV of 1 as the present value factor. Notes payable are obligations supported by creditor's promissory notes.
Toms UI IVesuTment to ychciut ed as a cost of borrowing to compensate the opportunity costs of the bank with I to the cash loaned to you. Moreover, the interest rate is usually expressed as nual percentage rate. activity ctions: On the space provided, write TRUE if the idea being expressed is correct and FALSE if otherwise. 1. In the most loan amortization schedules, amortization of discount or premium of the loan increases over time. 2. The process of obtaining future values is called discounting. 3. An annuity in which cash flows occur at the end of each period is called annuity. age
What is a common method used by banks to account for the interest income on loans that considers changes in market interest rates? a) Straight-line interest b) Effective interest rate method c) Simple interest d) Discounted cash flow method
Banks and other lenders are required to disclose a rate called the APR. What is this rate?Why did Congress require that it be disclosed? Is it the same as the effective annual rate? Ifyou were comparing the costs of loans from different lenders, could you use their APRs todetermine the loan with the lowest effective interest rate? Explain.
The interest rate that banks provide to the customers for the savings deposit account is more than current deposit account but less than: a. Overdraft account b. Savings deposit account c. Flexible account d. Fixed deposit account
Which of the following is false about the discount on short-term notes payable? The Discount on Notes Payable account has a debit balance. The Discount on Notes Payable account should be reported as an asset on the balance sheet. If there is a discount on notes payable, the effective interest rate is higher than the stated discount rate. All of these are true
Which interest rate does not typically move with the bank rate? the rate on loans negotiated by credit unions the rate on mortgages the rate on personal credit lines the rate on credit cards the rate on loans secured by financial assets
match the correct term for each of the following descriptions. Descriptions Terms Examples of these instruments include trade credit, accruals, short-term bank loans, and commercial paper. Accruals A document that provides evidence of the existence of a debt, and specifies the terms of the loan transaction. Blanket lien The cost of accounts payable paid before the expiration of the discount period. Commercial paper This financial instrument uses a borrowing firm’s entire inventory of low-priced, fast selling, and fungible products to secure a short-term loan, and allows the borrower to sell items from inventory without the lender’s permission. Commitment fee A fee charged by a financial institution providing a guaranteed, or revolving, line of credit, on the unused balance of a revolving line of credit. Discount interest loan A form of unsecured short-term financing used by large, extremely creditworthy business organizations. Factoring A financial…
1. This is the criterion to determine whether the transfer is accounted for as borrowing._______________ 2. What account to debit if the company pays a delinquent notes receivable that was previously discounted._______________ 3. What account to credit if the customer’s notes receivable become delinquent and was not previously discounted._______________ 4. When accounts receivable is factored, the accounts payable shall be credited. True or False?_______________ 5. The interest on a non-interest bearing note is equal to its discount amount._______________ 6. The practice of realizing cash from accounts receivable before its maturity date is widespread. Defalcation is one of them. True or False?_______________ 7. A 120-day, 10% interest-bearing note receivable is sold to a bank with recourse after being held for 60 days. The proceeds are calculated using an 8% interest rate. In this situation, what happened to the notes receivable?_______________ 8. On January 1, an entity received a…
Which interest rate is used on very short-term loans from one bank to another? A. Prime interest rate B. Commercial paper rate C. Treasury bill rate D. Fed funds rate