'GAAP for zero-interest-bearing note Essay\r'

'Wie federation has been in operation(p) for just 2 years, producing medium play equipment for women golfers. To date, the on the wholeiance has been able to pay its boffo operations with investments from its principal owner, Michelle Wie, and hard currency flows from operations. However, live expanding upon plans will deal whatsoever borrowing to expand the comp any(prenominal)’s production line. As reveal of the expansion plan, Wie will acquire both(prenominal) utilize equipment by signing a zero- cheer- affording none. The none has a maturity protect of $50,000 and matures in 5 years. A bona fide graceful lever measure for the equipment is non available, give the age and specialty personality of the equipment.\r\nAs a result, Wie’s write up mental faculty is unable to determine an open supervene upon charge for registering the equipment (nor the en flagrant esteem to be used to record involution expense on the long line of descent) . They throw asked you to conduct some(a) accountancy interrogation on this topic. (a) Identify the compulsive publications that provides commission on the zero-interest-bearing tubercle. habit some of the slips to explain how the standard applies in this setting.
(b) How is record cling to determined when an constituted qualify price is not definable and a demean has no active marketplace? What is the resulting interest come out ofttimes called?
(c) Where should a give the axe or superior attend in the financial statements? What more or less bonk personifys?\r\nâ€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€â€\r\nThis work requires that you run into the seemly value of the business line on the seller’s books (note due). Portion of the code argon cut and pasted into the inscription for you. There are two pieces of purchasing an summation with a note. The plus value and the value of the note. Here, the addition value is not cheatn. Below it discusses that if you sham’t know the value of the asset, you use the value of what was exchange for it. Quotes from Codification
360 Assets
845 Nonmonetary Transactions
10 boilersuit
30 Initial Measurement 30-8 reasonable value should be regarded as not calculable within reasonable limits if study uncertainties exist about the realizability of the value that would be assigned to an asset received in a nonmonetary transaction accounted for at fun honest value. An exchange involving parties with essentially opposing interests is not considered a prerequisite to determining a fair value of a nonmonetary asset transferred; nor does an exchange ensure that a fair value for accounting purposes plunder be ascertained within reasonable limits. If incomplete the fair value of a nonmonetary asset transferred nor the fair value of a nonmonetary asset recei ved in exchange is ascertainable within reasonable limits, the recorded union of the nonmonetary asset transferred from the entity may be the solitary(prenominal) available measure of the transaction.
310 Receivables
10 boilersuit
30 Initial Measurement
 indisputable Receivables 30-1\r\nThe following provides initial measurement guidance for certain notes receivable, specifically those exchanged for hard cash and those exchanged for property, goods, or services. Such notes may be originated by an entity or purchased from a third party. 30-3 As indicated in dissever 835-30-25-8, notes exchanged for property, goods, or services are valued and accounted for at the present value of the consideration exchanged between the promise parties at the date of the transaction in a manner alike(p) to that followed for a cash transaction. 30-5 As indicated in divide 835-30-25-10, in circumstances where interest is not say, the stated amount is unlogical, or the s tated face amount of the note is materially different from the current cash sales price for the same or identical point in times or from the market value of the note at the date of the transaction, the note, the sales price, and the cost of the property, goods, or services exchanged for the note shall be recorded at the fair value of the property, goods, or services or at an amount that reasonably approximates the market value of the note, whichever is the more clearly determinable.\r\n30-6 divide 835-30-25-11 explains that, in the absence of try outed exchange prices for the related property, goods, or services or evidence of the market value of the note (as described in paragraph 835-30-25-2), the present value of a note that stipulates any no interest or a regularize of interest that is clearly unreasonable shall be determined by discounting all future payments on the notes using an imputed rate of interest as described in Subtopic 835-30. Paragraph 835-30-25-11 explains that this determination shall be make at the time the note is acquired; any subsequent changes in prevalent interest rates shall be ignored.
â€â€â€â€â€â€â€â€â€ Now, to your questions…\r\nWie Company has been operating for just 2 years, producing specialty golf equipment for women golfers. To date, the company has been able to finance its successful operations with investments from its principal owner, Michelle Wie, and cash flows from operations. However, current expansion plans will require some borrowing to expand the company’s production line. As part of the expansion plan, Wie will acquire some used equipment by signing a zero-interest-bearing note. The note has a maturity value of $50,000 and matures in 5 years. A reliable fair value measure for the equipment is not available, given the age and specialty nature of the equipment. As a result, Wie’s accounting staff is unable to determine an completed exchange price for recor ding the equipment (nor the interest rate to be used to record interest expense on the long-term note). They hold asked you to conduct some account research on this topic. (a) Identify the authoritative lit that provides guidance on the zero-interest-bearing note. Use some of the examples to explain how the standard applies in this setting.\r\nThe literature says that you value assets acquired by the value of that asset. If you don’t know it, you are hypothetic to figure it out, if possible, by grimaceing at the cash price you could have salaried (but didn’t). Or, if in that respect is just no commission to figure it out reasonably, then you look at the fair value of the item traded, in this case the note. So, you see if there is a market value for the note. Is it traded? Does it bear an interest rate so you can get the present value of it? No! The value of this note isn’t immediately apparent because you don’t have an interest rate to use to disco unt it back to the present value. So, you have to impute an interest rate (whole other segment in the codification!). Another example of bar valuing an asset exchange would be when a firm leases, rather than sells, their inventory. What is the merchandising price? The present value of the minimum future rentals are used to establish a likely selling price for the purpose of recording the sale and the gross profit from the sale.\r\nAnother example of difficulty valuing an asset exchange is when assets are traded and there is no cash price or cash exchange. You would use the value of whichever asset is more readily determined, such as the price of the stock on actively traded exchanges. (b) How is present value determined when an established exchange price is not determinable and a note has no ensnare market? What is the resulting interest rate a lot called? You have to discern an interest rate by looking at the prevailing interest rates for similar instruments with firms of simi lar credit status to this one. This is called the imputed interest rate. (c) Where should a discount or indemnity appear in the financial statements? What about issue costs? The discount or premium is a contra account to the note receivable on the issuer’s books (reduces assets in the offset tack). Cost to issue should be blossom forth over the life of the note (capitalized as asset in the balance sheet and amortized over life of note).\r\n'