Question

when an equipment dealer receives a long-term note in exchange for equipment, and the stated rate of interest is indicative of the market rate of interest at the time of the transaction, the present value of the future cash flows received on the notes is: multiple choice recorded as interest revenue at the exchange date. recorded as interest receivable at the exchange date. treated as a current liability at the exchange date. credited to sales revenue at the exchange date.

Answer 1

The present value of the future cash flows from a long-term note, when the interest rate reflects the market rate, is credited to sales revenue at the time of the equipment exchange.

Step-by-step explanation:

When an equipment dealer receives a long-term note in exchange for equipment, and the stated rate of interest is indicative of the market rate of interest at the time of the transaction, the present value of the future cash flows received on the note is credited to sales revenue at the exchange date. In accounting, the present value of the note is determined based on the market interest rate, and it represents the fair value of the equipment sold. If the note's interest rate reflects the market rate, then the transaction reflects an arm's length exchange, and the present value of the future cash flows from the note is recognized as sales revenue, which is an element of income on the dealer's financial statements.