D103 – Intermediate
Accounting OA2 Units 5–7
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,A company issues a five-year zero-interest-bearing note The lathe is recorded at its present value of $20,548. No calculation is required.
for a new lathe it purchased for $25,000. The market rate Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
of interest at the time the note was issued is 4%. Assuming valued at the present value of the note.
an annual interest rate of 4% for five years is appropriate,
the present value of the principal is $25,000 × 0.82193 =
$20,548. Assuming an annual interest rate of 5% for 4
years is appropriate, the present value of the principal is
$25,000 × 0.82270 =
$20,568.
What amount should be recorded for the cost of the lathe?
Equipment is exchanged for a noninterest-bearing note. The equipment is recorded at its present value of $19,048. No calculation is
Payment of $20,000 on the note is to be made in one year. required.
The market rate for notes of similar risk is 5%. Assuming Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
an annual interest rate of 5% is appropriate, the present valued at the present value of the note.
value of the principal is $20,000 × 0.95238 = $19,048.
Assuming that a semiannual interest rate of 2.5% is
appropriate, the present value of the principal is
($20,000/2) × 1.92742 = $19,274.
What amount should be recorded for the purchase of this
equipment?
Company A sells land to Company B for $100,000. The note is recorded at its present value of $90,703. No calculation is required.
Company A takes a note from Company B that is due in Accounting Rule: A note received in exchange for property is valued at its present
two years. Assuming an annual interest rate of 5% is value.
appropriate, the implied annual interest is $100,000
× 0.05 = $5,000, and the present value of the note is
$100,000 × 0.90703
= $90,703.
What amount should Company A record for the sale?
Company A sells a parcel of land to Company B in The note is recorded at its present value of $495,870. No calculation is required.
exchange for a note receivable. The terms of the note Accounting Rule: A note received in exchange for property is valued at its present
require Company B to make a single payment of $600,000 value.
in two years. Using a 10% interest rate, the implied annual
interest is $600,000 × 0.10 = $60,000, and the present
value of the note is $600,000 × 0.82645 = $495,870.
What amount must Company A consider as proceeds from
the sale of the land in order to calculate gross profit or
gain/loss on the sale, and be in accordance with generally
accepted accounting principles (GAAP)?
A company performs services for a customer in exchange The note is recorded at its present value of $86,384. No calculation is required.
for a noninterest-bearing note. The customer agrees to Accounting Rule: A note received in exchange for service is valued at its present
make a payment of$100,000 in three years. Using a 5% value.
interest rate, the implied annual interest is $100,000 × 0.05
= $5,000, and the present value of the note is $100,000 ×
0.86384 = $86,384.
What amount should the company record as service
revenue from this transaction to be in accordance with
generally accepted accounting principles (GAAP)?
A customer signs a noninterest-bearing note, promising to The note is recorded at its present value of $10,000. No calculation is required.
pay the company Accounting Rule: A note received in exchange for goods is valued at its present
$11,664 in two years. The payment amount is based on an value.
annual interest rate of 8%, which the company believes is
appropriate, resulting in the present value of the note of
$11,664 × 0.85734 = $10,000.
Which amount should the company record as sales
revenue from this transaction to be in accordance with
generally accepted accounting principles (GAAP)?
, A company requires $8,000 cash in a savings account The present value of $8,000 at the beginning of the year is $7,843. No calculation is
earning 2% interest at the end of the year. Assuming an required.
annual interest rate of 2% is appropriate, the implied This is a single-sum problem that requires determining the unknown present value
annual interest is $8,000 × 0.02 = $160, and the present of a known single sum of money in the future that is discounted for a certain number
value of the savings is $8,000 × 0.98039 = $7,843. of periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce
What amount should be deposited into the savings a known future value. It is always a smaller amount than the given future value.
account at the beginning of the year?
A company collects $1,500 of rent from a tenant at the end Discounting is the process of reducing the face/principal amount to a present value.
of the year. The company invests the rent money in an The present value of $1,500 at the beginning of the year is $1,442. No calculation is
investment earning 4% interest per year. Assuming a 4% required.
annual interest rate is appropriate, the implied annual This is a single-sum problem that requires determining the unknown present value
interest is $1,500 × 0.04 = $60, and the present value of of a known single sum of money in the future that is discounted for a certain number
the rent is $1,500 × 0.96154 = $1,442. of periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce
What is the discounted value of this rent at the beginning a known future value. It is always a smaller amount than the given future value.
of Year 1?
A company has the following cash balances: $204,450 = $127,000 + $17,000 + $450 + $60,000
Large bank: $ 127,000 Accounting Rule: Cash is coin, currency, bank deposits including checking and
Small bank: $ 17,000 savings accounts, and negotiable instruments such as money orders, cashiers’
Continental bank: $ (42,000) checks, personal checks, and bank drafts. Petty cash funds and change funds are
Petty cash: $ 450 also cash.
3-month treasury bill: $ 60,000 Cash equivalents is treasury bills, commercial paper, money market funds, money
CD maturing in 18 months: $ 100,000 market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
What is the amount of cash and cash equivalents that The bank overdraft for Continental bank is reported as a current liability. It cannot be
should be reported? offset against the other banks’ cash account. However, the overdraft could be offset
if the company had another cash account with Continental bank.
A company has the following items at year-end: $37,500 = $30,000 + $500 + $7,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and
cash in bank: $30,000 savings accounts, and negotiable instruments such as money orders, cashiers’
petty cash: $500 checks, personal checks, and bank drafts. Petty cash funds and change funds are
short-term paper with maturity of two months: $7,000 also cash.
postdated checks: $2,000 Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
What amount should be reported as cash and cash liquidity of less than 3 months. (Note: 3 months is interpreted to mean 90 days or
equivalents in the balance sheet? less.)
Postdated checks are reported as receivables.
A company has the following items at year-end: $19,000 = $18,500 + $500
Accounting Rule: Cash is coin, currency, bank deposits including checking and
cash in bank - checking account of $18,500 savings accounts, and negotiable instruments such as money orders, cashiers’
cash on hand of $500 checks, personal checks, and bank drafts. Petty cash funds and change funds are
post-dated checks received totaling $3,500 also cash.
certificates of deposit totaling $124,000 Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
How much should be reported as cash in the balance liquidity of less than 3 months (90 days).
sheet? Postdated checks are reported as receivables.
A company has the following items at year-end: $35,300 = $35,000 + $300
Accounting Rule: Cash is coin, currency, bank deposits including checking and
cash in bank: $35,000 savings accounts, and negotiable instruments such as money orders, cashiers’
petty cash: $300 checks, personal checks, and bank drafts. Petty cash funds and change funds are
short-term paper with maturity of 120 days: $5,500 also cash.
postdated checks: $1,400 Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
How much should be reported as cash in the balance liquidity of less than 3 months (90 days).
sheet? Postdated checks are reported as receivables.
Accounting OA2 Units 5–7
2026 | Study Guide,
Practice Questions,
Answers, Rationales &
Exam Review | Complete
Ethics Study Guide
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales
Included
,A company issues a five-year zero-interest-bearing note The lathe is recorded at its present value of $20,548. No calculation is required.
for a new lathe it purchased for $25,000. The market rate Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
of interest at the time the note was issued is 4%. Assuming valued at the present value of the note.
an annual interest rate of 4% for five years is appropriate,
the present value of the principal is $25,000 × 0.82193 =
$20,548. Assuming an annual interest rate of 5% for 4
years is appropriate, the present value of the principal is
$25,000 × 0.82270 =
$20,568.
What amount should be recorded for the cost of the lathe?
Equipment is exchanged for a noninterest-bearing note. The equipment is recorded at its present value of $19,048. No calculation is
Payment of $20,000 on the note is to be made in one year. required.
The market rate for notes of similar risk is 5%. Assuming Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
an annual interest rate of 5% is appropriate, the present valued at the present value of the note.
value of the principal is $20,000 × 0.95238 = $19,048.
Assuming that a semiannual interest rate of 2.5% is
appropriate, the present value of the principal is
($20,000/2) × 1.92742 = $19,274.
What amount should be recorded for the purchase of this
equipment?
Company A sells land to Company B for $100,000. The note is recorded at its present value of $90,703. No calculation is required.
Company A takes a note from Company B that is due in Accounting Rule: A note received in exchange for property is valued at its present
two years. Assuming an annual interest rate of 5% is value.
appropriate, the implied annual interest is $100,000
× 0.05 = $5,000, and the present value of the note is
$100,000 × 0.90703
= $90,703.
What amount should Company A record for the sale?
Company A sells a parcel of land to Company B in The note is recorded at its present value of $495,870. No calculation is required.
exchange for a note receivable. The terms of the note Accounting Rule: A note received in exchange for property is valued at its present
require Company B to make a single payment of $600,000 value.
in two years. Using a 10% interest rate, the implied annual
interest is $600,000 × 0.10 = $60,000, and the present
value of the note is $600,000 × 0.82645 = $495,870.
What amount must Company A consider as proceeds from
the sale of the land in order to calculate gross profit or
gain/loss on the sale, and be in accordance with generally
accepted accounting principles (GAAP)?
A company performs services for a customer in exchange The note is recorded at its present value of $86,384. No calculation is required.
for a noninterest-bearing note. The customer agrees to Accounting Rule: A note received in exchange for service is valued at its present
make a payment of$100,000 in three years. Using a 5% value.
interest rate, the implied annual interest is $100,000 × 0.05
= $5,000, and the present value of the note is $100,000 ×
0.86384 = $86,384.
What amount should the company record as service
revenue from this transaction to be in accordance with
generally accepted accounting principles (GAAP)?
A customer signs a noninterest-bearing note, promising to The note is recorded at its present value of $10,000. No calculation is required.
pay the company Accounting Rule: A note received in exchange for goods is valued at its present
$11,664 in two years. The payment amount is based on an value.
annual interest rate of 8%, which the company believes is
appropriate, resulting in the present value of the note of
$11,664 × 0.85734 = $10,000.
Which amount should the company record as sales
revenue from this transaction to be in accordance with
generally accepted accounting principles (GAAP)?
, A company requires $8,000 cash in a savings account The present value of $8,000 at the beginning of the year is $7,843. No calculation is
earning 2% interest at the end of the year. Assuming an required.
annual interest rate of 2% is appropriate, the implied This is a single-sum problem that requires determining the unknown present value
annual interest is $8,000 × 0.02 = $160, and the present of a known single sum of money in the future that is discounted for a certain number
value of the savings is $8,000 × 0.98039 = $7,843. of periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce
What amount should be deposited into the savings a known future value. It is always a smaller amount than the given future value.
account at the beginning of the year?
A company collects $1,500 of rent from a tenant at the end Discounting is the process of reducing the face/principal amount to a present value.
of the year. The company invests the rent money in an The present value of $1,500 at the beginning of the year is $1,442. No calculation is
investment earning 4% interest per year. Assuming a 4% required.
annual interest rate is appropriate, the implied annual This is a single-sum problem that requires determining the unknown present value
interest is $1,500 × 0.04 = $60, and the present value of of a known single sum of money in the future that is discounted for a certain number
the rent is $1,500 × 0.96154 = $1,442. of periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce
What is the discounted value of this rent at the beginning a known future value. It is always a smaller amount than the given future value.
of Year 1?
A company has the following cash balances: $204,450 = $127,000 + $17,000 + $450 + $60,000
Large bank: $ 127,000 Accounting Rule: Cash is coin, currency, bank deposits including checking and
Small bank: $ 17,000 savings accounts, and negotiable instruments such as money orders, cashiers’
Continental bank: $ (42,000) checks, personal checks, and bank drafts. Petty cash funds and change funds are
Petty cash: $ 450 also cash.
3-month treasury bill: $ 60,000 Cash equivalents is treasury bills, commercial paper, money market funds, money
CD maturing in 18 months: $ 100,000 market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
What is the amount of cash and cash equivalents that The bank overdraft for Continental bank is reported as a current liability. It cannot be
should be reported? offset against the other banks’ cash account. However, the overdraft could be offset
if the company had another cash account with Continental bank.
A company has the following items at year-end: $37,500 = $30,000 + $500 + $7,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and
cash in bank: $30,000 savings accounts, and negotiable instruments such as money orders, cashiers’
petty cash: $500 checks, personal checks, and bank drafts. Petty cash funds and change funds are
short-term paper with maturity of two months: $7,000 also cash.
postdated checks: $2,000 Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
What amount should be reported as cash and cash liquidity of less than 3 months. (Note: 3 months is interpreted to mean 90 days or
equivalents in the balance sheet? less.)
Postdated checks are reported as receivables.
A company has the following items at year-end: $19,000 = $18,500 + $500
Accounting Rule: Cash is coin, currency, bank deposits including checking and
cash in bank - checking account of $18,500 savings accounts, and negotiable instruments such as money orders, cashiers’
cash on hand of $500 checks, personal checks, and bank drafts. Petty cash funds and change funds are
post-dated checks received totaling $3,500 also cash.
certificates of deposit totaling $124,000 Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
How much should be reported as cash in the balance liquidity of less than 3 months (90 days).
sheet? Postdated checks are reported as receivables.
A company has the following items at year-end: $35,300 = $35,000 + $300
Accounting Rule: Cash is coin, currency, bank deposits including checking and
cash in bank: $35,000 savings accounts, and negotiable instruments such as money orders, cashiers’
petty cash: $300 checks, personal checks, and bank drafts. Petty cash funds and change funds are
short-term paper with maturity of 120 days: $5,500 also cash.
postdated checks: $1,400 Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
How much should be reported as cash in the balance liquidity of less than 3 months (90 days).
sheet? Postdated checks are reported as receivables.
