WGU D103 - INTERMEDIATE ACCOUNTING - OA2 (UNITS 5-7)
2025
A company issues a five-year zero-interest-bearing note for a new lathe
it purchased for $25,000. The market rate of interest at the time the note
was issued is 4%. Assuming 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? -
CORRECT -The lathe is recorded at its present value of
$20,548. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-
bearing note is valued at the present value of the note.
Equipment is exchanged for a noninterest-bearing note. Payment of
$20,000 on the note is to be made in one year. The market rate for notes
of similar risk is 5%. Assuming an annual interest rate of 5% is
appropriate, the present 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? -
CORRECT -The equipment is recorded at its present value
of $19,048. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-
bearing note is valued at the present value of the note.
Company A sells land to Company B for $100,000. Company A takes a
note from Company B that is due in two years. Assuming an annual
interest rate of 5% is 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? -
CORRECT -The note is recorded at its present value of
$90,703. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at
its present value.
Company A sells a parcel of land to Company B in exchange for a note
receivable. The terms of the note require Company B to make a single
payment of $600,000 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)? -
CORRECT -The note is recorded at its present value of
$495,870. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at
its present value.
A company performs services for a customer in exchange for a
noninterest-bearing note. The customer agrees to make a payment
of$100,000 in three years. Using a 5% 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)? - CORRECT -The note is recorded at its
present value of $86,384. No calculation is required.
Accounting Rule: A note received in exchange for service is valued at its
present value.
A customer signs a noninterest-bearing note, promising to pay the
company
, $11,664 in two years. The payment amount is based on an 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)? - CORRECT -The note is recorded at its
present value of $10,000. No calculation is required.
Accounting Rule: A note received in exchange for goods is valued at its
present value.
A company requires $8,000 cash in a savings account earning 2%
interest at the end of the year. Assuming an annual interest rate of 2% is
appropriate, the implied annual interest is $8,000 × 0.02 = $160, and the
present value of the savings is $8,000 × 0.98039 = $7,843.
What amount should be deposited into the savings account at the
beginning of the year? - CORRECT -The present value of
$8,000 at the beginning of the year is $7,843. No calculation is required.
This is a single-sum problem that requires determining the unknown
present value of a known single sum of money in the future that is
discounted for a certain number of periods at a certain interest rate.
2025
A company issues a five-year zero-interest-bearing note for a new lathe
it purchased for $25,000. The market rate of interest at the time the note
was issued is 4%. Assuming 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? -
CORRECT -The lathe is recorded at its present value of
$20,548. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-
bearing note is valued at the present value of the note.
Equipment is exchanged for a noninterest-bearing note. Payment of
$20,000 on the note is to be made in one year. The market rate for notes
of similar risk is 5%. Assuming an annual interest rate of 5% is
appropriate, the present 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? -
CORRECT -The equipment is recorded at its present value
of $19,048. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-
bearing note is valued at the present value of the note.
Company A sells land to Company B for $100,000. Company A takes a
note from Company B that is due in two years. Assuming an annual
interest rate of 5% is 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? -
CORRECT -The note is recorded at its present value of
$90,703. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at
its present value.
Company A sells a parcel of land to Company B in exchange for a note
receivable. The terms of the note require Company B to make a single
payment of $600,000 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)? -
CORRECT -The note is recorded at its present value of
$495,870. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at
its present value.
A company performs services for a customer in exchange for a
noninterest-bearing note. The customer agrees to make a payment
of$100,000 in three years. Using a 5% 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)? - CORRECT -The note is recorded at its
present value of $86,384. No calculation is required.
Accounting Rule: A note received in exchange for service is valued at its
present value.
A customer signs a noninterest-bearing note, promising to pay the
company
, $11,664 in two years. The payment amount is based on an 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)? - CORRECT -The note is recorded at its
present value of $10,000. No calculation is required.
Accounting Rule: A note received in exchange for goods is valued at its
present value.
A company requires $8,000 cash in a savings account earning 2%
interest at the end of the year. Assuming an annual interest rate of 2% is
appropriate, the implied annual interest is $8,000 × 0.02 = $160, and the
present value of the savings is $8,000 × 0.98039 = $7,843.
What amount should be deposited into the savings account at the
beginning of the year? - CORRECT -The present value of
$8,000 at the beginning of the year is $7,843. No calculation is required.
This is a single-sum problem that requires determining the unknown
present value of a known single sum of money in the future that is
discounted for a certain number of periods at a certain interest rate.
