On October 1, year 1, Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note's market rate of interest was 11%. Fleur recorded the purchase at the note's face amount. All of the merchandise was sold by December 1, year 1. Fleur's year 1 financial statements reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1, year 2. Fleur's year 1 cost of goods sold for the holiday merchandise was O Overstated by the difference between the note's face amount and the note's October 1, year 1 present value plus 11% interest for 2 months. ● Understated by the difference between the note's face amount and the note's October 1, year 1 present value plus 16% interest for 2 months. O Overstated by the difference between the note's face amount and the note's October 1, year 1 present value. O Correctly recorded at face value since the term of the note is less than 1 year.
On October 1, year 1, Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note's market rate of interest was 11%. Fleur recorded the purchase at the note's face amount. All of the merchandise was sold by December 1, year 1. Fleur's year 1 financial statements reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1, year 2. Fleur's year 1 cost of goods sold for the holiday merchandise was O Overstated by the difference between the note's face amount and the note's October 1, year 1 present value plus 11% interest for 2 months. ● Understated by the difference between the note's face amount and the note's October 1, year 1 present value plus 16% interest for 2 months. O Overstated by the difference between the note's face amount and the note's October 1, year 1 present value. O Correctly recorded at face value since the term of the note is less than 1 year.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:On October 1, year 1, Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that
date, there was no direct method of pricing the merchandise, and the note's market rate of interest was 11%. Fleur recorded the
purchase at the note's face amount. All of the merchandise was sold by December 1, year 1. Fleur's year 1 financial statements
reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1,
year 2. Fleur's year 1 cost of goods sold for the holiday merchandise was
Overstated by the difference between the note's face amount and the note's October 1, year 1 present value plus 11%
interest for 2 months.
● Understated by the difference between the note's face amount and the note's October 1, year 1 present value plus 16%
interest for 2 months.
Overstated by the difference between the note's face amount and the note's October 1, year 1 present value.
O Correctly recorded at face value since the term of the note is less than 1 year.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education