Ar Questions
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True or False
-Amortization of discount decreases the CV of the note.
-Amortization of premium increases the CV of the note.
-Assuming there is no periodic payment of the note, amortization of discount increases from one period to another.
-Assuming there is no periodic payment of the note, amortization of premium decreases from one period to another.
-For interest bearing note with unrealistic rate, interest income is computes using the nominal rate.
-Unlike cash discount, trade discount is recognized for accounting purposes.
-Using gross price method of accounting for cash discount, accounts receivable is debited and sales discount forfeited is credited an adjustment every period end to anticipate sales discount to be claimed by the customer.
-The account “Allowance for sales discount” is deducted to Sales to arrive at Net Sales.
-Assuming the use of allowance method in accounting for cash discount, the account “Allowance for sales discount” is debited whenever collection is made within the discount period.
-Assuming the use of net price method of accounting, the account “Sales discount” is debited whenever collection is made within the discount period.
-Effective interest rate for non- interest bearing note is equal to zero.
-A discount on notes receivable would arise if the effective rate is greater than the nominal rate.
-Assuming the use of allowance method for accounting bad debts, recovery of account previously written off would increase the “Allowance for bad debts” account.
-Assuming the use of direct write off method for accounting bad debts, recovery of account previously written off increases the net income of the company.
-For interest bearing note with realistic rate, present value of the note is equal to its face value.